National Insurance contributions explained, and how Zoho Payroll makes it easier

National Insurance is an important part of running payroll in the UK. Employers need to calculate the right contributions, deduct employee National Insurance from pay where applicable, pay their own employer contributions, and report the relevant information to HMRC.

The amount of National Insurance due depends on factors such as an employee's earnings, National Insurance category, and employment circumstances.

For employers, getting these calculations right is essential to running accurate payroll and meeting PAYE obligations.
 

This guide explains how National Insurance contributions work, the different classes employers should know about, the current 2026/27 thresholds and rates, and how payroll software such as Zoho Payroll can help manage NI calculations as part of payroll.

What are National Insurance contributions?

National Insurance forms part of the UK’s social security system. Employees and employers may have to make NI contributions through payroll, while separate rules apply to people who are self employed. These contributions help support the UK social security system and can help maintain entitlement to certain state benefits, including the State Pension.

NI liability is not the same for everyone. The amount due is determined by factors such as how someone is employed, how much they earn, and which National Insurance class or category applies to them.

Although National Insurance and Income Tax can both appear as deductions on an employee’s payslip, they are calculated differently. Income Tax uses tax bands to determine the amount payable on taxable income, whereas NI is generally worked out using defined earnings thresholds and contribution rates that vary according to the employee’s circumstances.

How does National Insurance work for employers?

When running payroll, an employer generally needs to determine:

• The employee's National Insurance category letter

• The employee's NIable earnings

• Whether those earnings fall above the relevant NI thresholds

• The employee's Class 1 contribution

• The employer's Class 1 contribution

• Any applicable special rules or reduced rates

• The amounts that need to be reported and paid through PAYE

The employee's National Insurance is deducted from their pay. The employer's contribution is an additional payroll cost and is not deducted from the employee's salary.

The different types of National Insurance classes

National Insurance is divided into different classes depending on how an individual earns their income and their employment circumstances. The applicable class determines how contributions are calculated and whether they are paid by the employee, employer, or individual.

Class 1 generally applies to employees and their employers. Employee Class 1 contributions are deducted from an employee’s pay when their earnings exceed the relevant Primary Threshold, while employers generally pay Class 1 contributions on earnings above the Secondary Threshold. The rates and thresholds can vary depending on the employee’s National Insurance category and circumstances.

Class 1A applies to employers on certain taxable benefits and expenses provided to employees, such as company cars and private medical insurance. 

Class 1B applies to employers that have a PAYE Settlement Agreement (PSA), which covers certain taxable expenses and benefits. Both are employer contributions. For 2026/27, the Class 1A and Class 1B rate is 15%.

Class 2 relates to self-employed individuals. For 2026/27, Class 2 contributions are treated as paid for people with profits of £7,105 or more, so they do not have to make an actual Class 2 payment. Those with profits below £7,105 can choose to pay voluntary Class 2 contributions at £3.65 a week.

Class 3 is an optional contribution that can be used by individuals to address gaps in their National Insurance record. For 2026/27, the voluntary Class 3 rate is £18.40 a week. Making these payments can help maintain entitlement to certain benefits, including the State Pension.

Class 4 applies to self-employed individuals whose profits exceed £12,570. For 2026/27, Class 4 National Insurance is charged at 6% on profits over £12,570 up to £50,270, and 2% on profits above £50,270.

National Insurance category letters

Employers use National Insurance (NI) category letters to determine the correct employee and employer contributions for each employee. The category assigned depends on the employee’s circumstances, such as their age, State Pension age, or employment status.

National Insurance thresholds

The amount of National Insurance (NI) due depends on an employee’s earnings, their NI category, and the relevant earnings thresholds. These thresholds determine when NI contributions apply and which rates are used.

NI thresholds for 2026/27  

The following thresholds apply for the 2026/27 tax year:

These 2026/27 thresholds are confirmed by HMRC.

Employee National Insurance contributions

The amount of National Insurance (NI) an employee pays is determined by their NI category and earnings. For most employees, the contribution is collected through PAYE and calculated using the rates that apply to their category and pay level.

For the 2026/27 tax year, the employee contribution rates are:

The rates and category treatment above are based on HMRC's 2026/27 contribution tables.

Example of employee National Insurance  

Suppose a Category A employee earns £600 a week in 2026/27.

Their employee NI would be calculated as follows:

• The first £242 is below the Primary Threshold, so no employee NI is due on this portion.

• The remaining £358 (£600 − £242) is charged at 8%.

• Employee NI is therefore £28.64 (£358 × 8%).

The employee’s National Insurance deduction for the week is £28.64.

Employer National Insurance rates

Employers pay Class 1 National Insurance contributions on their employees' earnings. The rate depends on the employee's National Insurance category and the level of their earnings.

For the 2026/27 tax year, the standard employer National Insurance rate is 15%, although some categories have reduced or zero rates within specific earnings bands. The table below shows the employer National Insurance rates that apply from 6 April 2026 to 5 April 2027.

The employer rate depends on the employee's National Insurance category and the level of their earnings. Certain categories qualify for a 0% employer rate up to a specific Upper Secondary Threshold.

Why accurate National Insurance calculations matter

Incorrect NI calculations can affect both employees and employers.

For employees, an incorrect deduction can change their take-home pay.

For employers, incorrect calculations can result in the wrong employer contribution being reported or paid to HMRC.

Accurate payroll therefore depends on applying the right:

• Earnings figures

• NI thresholds

• NI category letters

• Contribution rates

• Employee circumstances

• Payroll period

Keeping these details accurate throughout the year makes it easier to calculate and report National Insurance correctly.
 

How Zoho Payroll makes National Insurance management easier

Calculating National Insurance can become complicated when employees have different NI categories, earnings, and employment circumstances. Payroll teams need to apply the right category and account for the rules that apply to each employee.

Zoho Payroll lets you record the employee’s National Insurance number and NI category directly in their tax information. The category can be selected based on the employee’s circumstances, helping Zoho Payroll apply the relevant National Insurance treatment during payroll processing.

Once these details are set up, Zoho Payroll uses the employee’s payroll information to calculate the relevant employee and employer National Insurance contributions as part of the pay run.

This keeps key National Insurance information within the employee’s payroll record and reduces the need for payroll teams to work out contributions manually for each employee.

Disclaimer: The information in this guide is based on the UK 2026/27 tax year, from 6 April 2026 to 5 April 2027. National Insurance rates, thresholds, and rules may change from time to time, and the amount due may vary depending on individual circumstances. For the latest information and detailed guidance, refer to HM Revenue & Customs (HMRC).

Frequently Asked Questions

• What is National Insurance?
  
  National Insurance is a contribution paid by employees, employers, and self-employed people under the UK National Insurance system. For employees paid through PAYE, Class 1 National Insurance is generally the relevant class.
   
• What is Class 1 National Insurance?
  
  Class 1 National Insurance applies to employees and their employers. Employee contributions are deducted from the employee's pay, while employer contributions are paid separately by the employer.
   
• What is the employee NI rate in 2026/27?
  
  For a standard Category A employee, the employee National Insurance rate is 8% on earnings between the Primary Threshold and Upper Earnings Limit, and 2% on earnings above the Upper Earnings Limit.
   
• What is the employer NI rate in 2026/27?
  
  The standard employer Class 1 National Insurance rate is 15% on earnings above the Secondary Threshold. Different rates can apply to certain employee categories, such as apprentices, employees under 21, veterans, and employees working in Freeport or Investment Zone tax sites.
   
• What is the Primary Threshold for National Insurance in 2026/27?
  
  The Primary Threshold is £242 per week, £1,048 per month, or £12,570 per year for 2026/27. This is the threshold at which employee Class 1 National Insurance generally starts for most employees.
   
• What is the Secondary Threshold for National Insurance in 2026/27?
  
  The Secondary Threshold is £96 per week, £417 per month, or £5,000 per year for 2026/27. Employers generally start paying secondary Class 1 National Insurance above this threshold.
   
• What is the Upper Earnings Limit for National Insurance?
  
  For 2026/27, the Upper Earnings Limit is £967 per week, £4,189 per month, or £50,270 per year. For most Category A employees, earnings above this limit are subject to the 2% employee National Insurance rate.
   
• Does National Insurance apply to employees under 21?
  
  Employees under 21 can be subject to different National Insurance rules. For eligible employees under 21, employers generally pay 0% secondary Class 1 National Insurance on earnings up to the Upper Secondary Threshold of £967 a week, £4,189 a month, or £50,270 a year. Employee National Insurance can still apply according to the employee's category and earnings.
   
• Can payroll software calculate National Insurance?
  
  Yes. Payroll software can calculate National Insurance based on employee earnings, applicable thresholds, rates, and National Insurance category information. It can help calculate the amounts to deduct from employees' pay and the employer contributions due.

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