Key takeaways
- Class 1 is paid on earnings from employment: employees pay primary contributions and employers pay secondary contributions.
- It is worked out on each pay period separately, not on annual pay, except for company directors.
- In 2026/27 employees pay 8% between £242 and £967 a week and 2% above; employers pay 15% above £96 a week.
- Category letters on the payroll decide which rates apply, for example M for under-21s and H for apprentices under 25.
- Benefits in kind do not attract Class 1; employers pay Class 1A on them instead.
Class 1 National Insurance is the contribution taken through payroll on wages and salaries. Employees see it on their payslip; employers pay a second, larger contribution on top that employees never see. Together they are one of the biggest costs of employing people in the UK.
Who pays Class 1
- Employees aged 16 or over and under State Pension age pay primary Class 1 contributions on earnings above the Primary Threshold.
- Employers pay secondary Class 1 contributions on employees’ earnings above the Secondary Threshold, whatever the employee’s age, including on people over State Pension age.
Company directors are employees of their company for NI, but their contributions are worked out on an annual basis; see National Insurance for directors.
Rates and thresholds for 2026/27
| Threshold | Per week | Per month | Per year |
|---|---|---|---|
| Lower Earnings Limit | £129 | £559 | £6,708 |
| Primary Threshold | £242 | £1,048 | £12,570 |
| Secondary Threshold | £96 | £417 | £5,000 |
| Upper Earnings Limit | £967 | £4,189 | £50,270 |
| Rate | |
|---|---|
| Employee, between the Primary Threshold and the Upper Earnings Limit | 8% |
| Employee, above the Upper Earnings Limit | 2% |
| Employer, above the Secondary Threshold | 15% |
Earnings between the Lower Earnings Limit and the Primary Threshold attract no employee NI but still give the employee a qualifying week for State Pension and some benefits.
Pay periods, not annual pay
For most employees, Class 1 is calculated on the earnings in each earnings period: the week, month or other period for which they are paid. There is no annual adjustment. That has two effects:
- an employee who earns £2,000 in one month and nothing the next pays NI in the first month, even though their annual pay is below £12,570
- a one-off bonus is charged in the month it is paid, at whatever rate applies to that month’s earnings
If an employee has two jobs with different employers, each employer deducts NI separately, each using the full thresholds. Someone with two jobs may pay more than the annual maximum at 8% and can ask HMRC for a refund or to defer contributions.
What counts as earnings
Class 1 is charged on gross pay, including:
- salary, wages and overtime
- bonuses and commission
- holiday pay, sick pay and statutory payments such as SMP
- payments in cash vouchers and certain readily convertible assets
- employer payment of an employee’s personal bills, such as a home phone contract in the employee’s name
It is not charged on:
- most benefits in kind, which attract employer Class 1A at 15% instead
- business expenses repaid at cost, and approved mileage payments up to 55p a mile in 2026/27
- employer contributions to a registered pension scheme
- the first £30,000 of genuine termination payments (employer Class 1A applies above £30,000)
Pension contributions made by the employee under a net pay arrangement reduce taxable pay but not pay for NI. Salary sacrifice, by contrast, reduces earnings for both, which is why it saves NI.
Category letters
Payroll software applies a category letter to each employee to set the right rates. Common letters:
| Letter | Employee type | Employee rate (PT to UEL) | Employer rate up to UEL |
|---|---|---|---|
| A | Most employees | 8% | 15% above ST |
| B | Married women and widows with a reduced rate election | 1.85% | 15% above ST |
| C | Over State Pension age | Nil | 15% above ST |
| H | Apprentices under 25 | 8% | 0% up to £50,270 |
| M | Under 21 | 8% | 0% up to £50,270 |
| V | Veterans in their first year of civilian employment | 8% | 0% up to £50,270 |
| J | Deferred, because NI is already paid in another job | 2% | 15% above ST |
| F, I, L, S | Freeport employees | Various | 0% up to £25,000 |
| D, E, K, N, Z | Investment Zone and other deferment categories | Various | Various |
How Class 1 is collected
Employers deduct employee NI through payroll each pay day and report it to HMRC on the Full Payment Submission under Real Time Information. They pay the employee and employer contributions to HMRC with PAYE tax by the 22nd of the following month (19th by post), or quarterly if the monthly bill averages less than £1,500.
Reducing employer NI
- claim the £10,500 Employment Allowance if eligible
- use the 0% rates for under-21s, apprentices under 25 and veterans
- offer salary sacrifice for pensions, cycle to work and electric cars; from April 2029 sacrificed pension contributions above £2,000 a year will attract NI
- for small companies, consider how directors are paid; see employer’s NI: what it costs
Frequently asked questions
What is the difference between primary and secondary Class 1?
Primary contributions are paid by the employee and deducted from their pay. Secondary contributions are paid by the employer on top of the employee’s pay.
Is Class 1 National Insurance calculated annually?
No, it is calculated on each pay period for most employees. Company directors are the exception, as they use an annual earnings period.
Do employees over State Pension age pay National Insurance?
They pay no employee NI, but their employer still pays 15% employer NI on earnings above £5,000 a year.
Do I pay National Insurance on my bonus?
Yes. Bonuses are earnings and attract Class 1 NI in the pay period in which they are paid, unless they are sacrificed into a pension.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.