National Insurance: Understanding your obligations
GB tiptoes through the NI minefield to give you the clear, relevant information you need
National Insurance is, essentially, the price you pay for state benefits, notably your pension. In theory, it also goes towards the cost of free healthcare and education – although it’s hard to say how much of each individual’s NI actually goes towards these services. As an employer, you must pay National Insurance contributions, or NICs, on your personal earnings, your employee’s earnings, and the benefits you provide to your employees.
Under HMRC rules, you have to pay NICs for any employees who earn more than £102 per week – in other words, almost everyone who works a nine-to-five job. For NI purposes, earnings include salaries, wages, overtime, shift pay, tips (if they are allocated out of a communal pot), absence pay, expense allowances and compensation payments.
Your primary responsibility is to pay class 1 secondary contributions for each your staff; these complement the class 1 primary contributions, paid by the employees themselves. Each secondary contribution works out at 13.8% of the employee’s gross earnings, and is typically paid monthly.
You must also pay class 1A contributions, which are based on the benefits your employees receive. If they receive a company car, private medical insurance, or accommodation, you have to factor it into your 1A payment. 1A contributions are paid annually, and based on a rate of 12.8%.
The NICs for each of your employees should be calculated, and deducted, at the same time through PAYE when you do the payroll. Once each calculation has been made, you must pay the required amount to HMRC.
How to pay
Before you begin making NI contributions for your staff, you need to register for PAYE; HMRC requires that all employers who pay NICs must be registered with the scheme, and they will provide you with a PAYE payslip book to make payments. For more information on registering, click on the following link.
Once you’ve registered with PAYE, you can start working out how much NI you need to pay for each employee. To work out how much is owed for each member of staff, you can take advantage of the Revenue’s NI calculator.
Once you’ve worked out the amount you need to pay for each employee, you need to send the payment to Inland Revenue Accounting and Payment Services, along with your own class 1 payment, and your income tax payment. You can pay through your PAYE payslip book, or via one of a number of electronic options including CHAPS, BACS and direct debit. If you employ fewer than 250 staff, you also have the option of paying by post.
All electronic payments must be made by the 22nd of each month; all postal payments must be made by the 19th. Late payments are subject to a harsh interest rate, so it’s best to pay up promptly.
If you’re running a brand-new or recently established micro-business, located in the north, middle or west of the UK, there’s good news – you can currently benefit from a holiday on NICs for your staff.
Under the terms of a government initiative introduced last year, all new businesses outside London, the south east and the east of England, you’re exempt from up to £5,000 of employer contributions for each of first 10 staff you take on.
This holiday is set to last until 2013, so take advantage while you can.