How to Calculate National Insurance for Employees

When you employ staff, you need to calculate and deduct National Insurance contributions from their wages, as well as paying employer contributions on top. Understanding how these calculations work is essential for managing payroll correctly and budgeting for the true cost of employment.

What is Class 1 National Insurance?

Class 1 National Insurance is the type of National Insurance paid on employment income. It has two parts:

Employee contributions – deducted from the employee's wages before they're paid
Employer contributions – paid by you as the employer, on top of the employee's wages

The amounts you need to deduct and pay depend on how much the employee earns and their National Insurance category letter.

National Insurance category letters

Every employee has a category letter that determines how their National Insurance is calculated. You'll need to know this letter when running payroll – it should appear on the employee's payslip.

Category A is the most common and applies to most employees who don't fall into any special group.

Other category letters apply to specific groups:

Category B – Married women and widows with a certificate showing they're entitled to pay reduced National Insurance
Category C – Employees over State Pension age
Category H – Apprentices under 25
Category J – Employees who can defer National Insurance because they're already paying it in another job
Category M – Employees under 21
Category V – Employees in their first job since leaving the armed forces (veterans)
Category Z – Employees under 21 who can defer National Insurance because they're already paying it in another job

Additional category letters (F, I, L, S and N, E, D, K) apply to eligible employees working in freeports and investment zones respectively.

Category X is used for employees who don't pay National Insurance at all, such as those under 16.

Employee National Insurance rates for 2026/27

From 6 April 2026 to 5 April 2027, employee National Insurance is calculated using earnings bands. The rates vary by category letter, but for the most common Category A employees, the rates are:

Weekly earnings:

£0 to £242 – 0%
£242.01 to £967 – 8%
Over £967 – 2%

Monthly earnings:

£0 to £1,048 – 0%
£1,048.01 to £4,189 – 8%
Over £4,189 – 2%

Example calculation

If a Category A employee earns £1,000 in a week, you calculate their National Insurance as:

£0 on the first £242
£58 on earnings between £242.01 and £967 (8% of £725)
£0.66 on remaining earnings above £967 (2% of £33)

Total employee National Insurance: £58.66

Different category letters have different rates. For example, categories B, E and I pay 1.85% on earnings between the lower and upper thresholds, while categories C, K and S don't pay any employee National Insurance at all.

Employer National Insurance rates for 2026/27

As an employer, you also pay National Insurance on your employees' earnings. From 6 April 2026 to 5 April 2027, the standard employer rate is 15% on earnings above £96 per week (£417 per month).

For Category A employees (the most common), you pay:

Weekly earnings:

£96 to £481 – 15%
£481.01 to £967 – 15%
Over £967 – 15%

Monthly earnings:

£417 to £2,083 – 15%
£2,083.01 to £4,189 – 15%
Over £4,189 – 15%

Some category letters have reduced or zero employer contributions on certain earnings bands. For example:

Categories D, E, F, I, K, L, N and S have 0% employer contributions on earnings between £96 and £481 per week
Categories H, M, V and Z have 0% employer contributions on earnings up to £967 per week

Class 1A and Class 1B National Insurance

If you provide expenses and benefits to your employees (such as company cars or medical insurance), you'll also pay Class 1A National Insurance on the value of these benefits. The rate from 6 April 2026 to 5 April 2027 is 15%.

Class 1A also applies to some lump sum payments, such as redundancy payments that exceed the tax-free allowance.

Class 1B covers National Insurance on items included in a PAYE Settlement Agreement.