National Insurance (NI) is a tax on earnings that funds the NHS, state pension, and other benefits. Most working-age employees pay Class 1 National Insurance, which is collected through the PAYE system alongside income tax. Employers also pay their own separate NI contributions on top of your gross pay. Understanding how both are calculated — and the thresholds that govern them — helps you see exactly where your money goes.
Class 1 National Insurance Thresholds (2025-26)
Class 1 NI uses a series of earnings thresholds to determine when contributions start and how much is due. These are quoted as annual figures but calculated on each pay period:
| Threshold | Annual Amount | Purpose |
|---|---|---|
| Lower Earnings Limit (LEL) | £6,396 | Earns NI qualifying year without actually paying NI |
| Primary Threshold (PT) | £12,570 | Employee NI starts above this |
| Secondary Threshold (ST) | £5,000 | Employer NI starts above this |
| Upper Earnings Limit (UEL) | £50,270 | Employee rate drops above this |
Why the LEL Matters
If your earnings fall between the LEL (£6,396) and the PT (£12,570), you are treated as if you paid NI for the purposes of accruing qualifying years for the State Pension — but you actually pay nothing. This protects low earners’ state pension entitlement without reducing their take-home pay.
Employee (Primary) Class 1 NI Rates
Employees pay NI on their earnings above the Primary Threshold:
| Earnings | Rate |
|---|---|
| Up to £12,570 (PT) | 0% |
| £12,571 – £50,270 (UEL) | 8% |
| Over £50,270 | 2% |
The 2% rate above the UEL is sometimes called the “additional rate”. High earners continue to pay NI on all earnings above the UEL, but at the reduced 2% rate rather than 8%.
Employer (Secondary) Class 1 NI Rates
Employers pay NI on their employees’ earnings above the Secondary Threshold. From April 2025, the employer rate increased to 15%, and the Secondary Threshold dropped to £5,000 per year (from £9,100 previously). This significantly increases employer costs for most employees.
| Earnings | Rate |
|---|---|
| Up to £5,000 (ST) | 0% |
| Over £5,000 | 15% |
The employer NI is paid on top of the employee’s gross salary — it does not come out of the employee’s pay packet, but it does increase the total cost of employment.
Employment Allowance
Eligible employers can claim the Employment Allowance, which reduces their annual employer NI bill by up to £10,500 in 2025-26. This was increased from £5,000 in April 2025 and helps smaller businesses offset the impact of higher employer NI rates.
Worked Example: £35,000 Salary
Let’s calculate both employee and employer NI for an employee earning £35,000 per year.
Employee NI:
Earnings above the PT: £35,000 − £12,570 = £22,430
All of this falls below the UEL (£50,270), so the rate is 8%.
Employee NI = £22,430 × 8% = £1,794.40
Employer NI:
Earnings above the ST: £35,000 − £5,000 = £30,000
Employer NI = £30,000 × 15% = £4,500.00
Total cost to employer: £35,000 + £4,500 = £39,500
This shows why salary is just one part of the picture for employers — the true cost of hiring includes NI on top.
How NI Is Calculated Per Pay Period
Although annual thresholds are quoted, NI is actually calculated on each pay period (weekly or monthly). The annual thresholds are divided by the number of pay periods:
- Monthly: PT = £12,570 ÷ 12 = £1,047.50 per month
- Weekly: PT = £12,570 ÷ 52 = £241.73 per week
This matters because, unlike income tax which uses cumulative PAYE, NI is calculated non-cumulatively on each pay period. If your pay fluctuates — for example, due to a one-off bonus — the NI is based on that period’s earnings only, not averaged across the year.
Implication for bonuses: A large bonus paid in a single month can push that month’s earnings well above the UEL, meaning NI is charged at 8% up to that month’s UEL equivalent, then 2% above it. This is often more favourable than a cumulative calculation would be.
Director NI: The Annual Basis Exception
Company directors are an exception — their NI is calculated on an annual basis (or “annual earnings period”). This prevents directors from manipulating their pay schedule to minimise NI contributions. Directors pay 0% on the first £12,570, 8% from £12,571 to £50,270, and 2% above that — regardless of how the salary is distributed across the year.
Differences from Income Tax
NI and income tax are separate calculations, but they interact:
- Both employee NI and income tax are collected through PAYE.
- NI is not applied to pension contributions made via salary sacrifice — this is one reason salary sacrifice pension arrangements are popular.
- NI does not apply to most investment income (dividends, interest, rental income). It is a tax on earnings from employment or self-employment.
- There is no NI-equivalent of the personal allowance taper: no gradual withdrawal for high earners (though the rate does drop above the UEL).
Self-Employed NI
Self-employed people pay different NI classes. Class 4 NI applies to profits:
- 6% on profits between £12,570 and £50,270
- 2% on profits above £50,270
Class 2 NI was effectively abolished from April 2024: Class 2 contributions are now treated as paid (at zero cost) if profits exceed the Small Profits Threshold (£6,725 in 2025-26), protecting state pension entitlement without an actual charge.
Key Takeaways
- Employee Class 1 NI is 8% on earnings between £12,570 and £50,270, and 2% above that.
- Employer NI is 15% on earnings above £5,000 — significantly higher from April 2025.
- On a £35,000 salary, an employee pays approximately £1,794 in NI; their employer pays £4,500 on top.
- NI is calculated per pay period (not cumulatively), so bonuses are treated differently from income tax.
- Directors are assessed on an annual NI basis to prevent avoidance through uneven pay patterns.
Use the National Insurance calculator to see a full breakdown of employee and employer NI for any salary.