As an employee, it’s important to understand each deduction shown on a payslip, and one of the greatest mysteries employees often wonder about is: ‘Why am I paying National Insurance, and where is this amount of money going to?’
Firstly, it’s important to know exactly which class of National Insurance you are paying – yes that’s right there’s more than one…
Class 1 – This is what most employees will be paying, if their gross earnings are more than £155 a week, and the employee is below State Pension age. It’s what your employer automatically deducts each week on your payslip.
Class 1A or Class 1B – Your employer will be paying this directly on behalf of their employee for expenses or benefits.
Class 2 – Self-employed people will be paying this class of NI, but only if they earn more than £5965 a year. If you are earning less than this then you can pay voluntary contributions.
Class 3 – This is voluntary contributions, anyone can pay these to fill or avoid gaps in their NI record.
Class 4 – Self-employed people earning profits of more than £8060 a year would pay this class of National Insurance.
For the typical employee earning more than £155 a week and less than £815 a week, National Insurance is paid at 12%, and for those with earnings over £815 a week the NI is paid at 2%. However, you may be paying less National Insurance than this if:
• You are part of a contracted out workplace pension.
• You are a married women or widow with a valid ‘certificate of election’.
• You are deferring your National Insurance because you have more than one job.
The weekly payments which your employer deducts are paid across to HMRC, and these contributions count towards:
• Your Basic State Pension (currently worth £115.95 a week).
• The New State Pension (which will be no less than £151.25 per week).
• Contribution-based Jobseekers Allowance.
• Contribution-based Employment and Support Allowance, Maternity Allowance and also Bereavement benefits (which is something you might be able to claim if you’re widowed between 45 and State Pension age).
• Paying for the NHS, which could be the most beneficial to most employees as the NHS deals with over 1 million patients every 36 hours.
ICS’s Umbrella solution deducts all the relevant contributions for its employees, and is ideal to those new to contracting or on short-term contracts. If you choose to join ICS Umbrella, you will become an employee of ICS Umbrella Ltd and our experienced and knowledgeable team will handle everything for you. To find out more please call 0800 195 3750 or talk to us on our chat box.
If you have any questions with regards to your state pension or would like to know about your current contributions you can contact HMRC either:
• By completing this form: https://online.hmrc.gov.uk/shortforms/form/NIStatement?dept-name=&sub-dept-name=&location=40&origin=http://www.hmrc.gov.uk
• By calling the National Insurance Helpline: 0300 200 3500
Article written by Sarah Spooner, ICS’s Payroll Manger. Sarah is qualified as an Advanced Payroll Practitioner with the CIPP. Sarah has many years’ experience working in Payroll and has progressed to Payroll Manager since joining ICS in 2009.