An employee pays national insurance (NI) contributions to qualify for certain State benefits. These include statutory payments and the state pension. The amount the employee pays depends on their earnings and the NI category letter assigned to them. The employer also makes separate NI contributions on their behalf. The employer doesn't deduct these from employees pay. NI calculation methods There are two ways of calculating NI: Payroll uses the exact percentage method to calculate NI.
NI categories The NI category determines the NI rates and bands to use in NI calculations. This applies to both employee and employer NI contributions. The most common NI category is A. ▼NI categories Payroll supports the following NI categories: | A | Standard rate contributions
This is the most common NI category.
Used for all employees under State pension age who aren’t in a contracted pension scheme. | | B | Reduced rate contributions
Used for married women or widows who hold form CA4139, CF383 or CF3804. Also those who aren’t in a contracted pension scheme. | | C | Employer-only contributions
Used for employees over the State retirement age who hold form CA4140 or CF384.
The employee can get these forms from HMRC, or from the Pension Service. They can provide the employer with other proof of their date of birth. A birth certificate or passport is acceptable. | | F | (Freeport) Standard category
Equivalent to existing Category A. | | J | Deferred contributions
For employees with more than one job. Use when they’ve already reached the Upper Earnings Limit (UEL) for NI in their other job. This entitles them to defer their contributions and pay NI at 2% on all earnings above the UEL. The employee needs to get form CA2700 before you can assign this NI category. | | H | Apprentices under 25 | | I | Freeport – married women and widows reduced rate Equivalent to existing category B. | | L | Contributions where Employee has deferment (Freeport employees)
Employees must provide you with form CA2700 to confirm they qualify for Category L NICs. | | M | Standard rate contributions – under 21
Used for employees under 21 years old for standard NI contributions. | | S | Freeport – state pensioner
Equivalent to existing category C. | | V | Standard Rate Contributions (Veterans)
Use this category for 12 months. Start with the veteran’s first day of civilian employment after leaving HM armed forces. It ends 12 months later. | | Z | Reduced rate contributions – under 21
Used for employees under 21 years old for reduced rate NI contributions for a second job. |  TIP: A category X reference on an employee’s P11 is because their total NI contributions for the pay run are zero. Their earnings in the pay run are below the LEL threshold, or if the only payment made is a pension payment.
Also, a category X reference on an employee’s P60 means total NI contributions for the tax year are zero. Their earnings in the pay run are below the LEL threshold, or the only payment made was a pension payment.
For more information, read the HMRC article:
Ni rates and allowances To see a full list or rates and allowances used, read HMRC rates and allowances.
NI numbers Every employee needs an NI number, which is a unique reference code assigned by HMRC. The NI number identifies the employee's record of National Insurance contributions. Employee without NI number If an employee can’t give you their NI number when you set up their employee record, leave this box blank. Payroll sends a National Insurance verification (NVR) request to HMRC. This happens via the next FPS submission. HMRC will trace the employee’s NI number and send you a CA6856 form to confirm the correct number. |