Common reasons for incorrect national insurance (NI) deductions

Incorrect NI calculations can occur if any of the following types of information are incorrect:

NI category

The employee’s NI category determines the NI tables used to calculate NI deductions. If you enter the wrong NI category, incorrect NI deducts.

To check the employee’s NI category:

Select the Employees tab.
Select the relevant employee.
In the Current Tax Details section, check the NI category.
If the details are incorrect make the necessary changes.

If you’ve processed your employees on the incorrect NI category, you need to correct this. Read our article make Make corrections to a completed pay run. Use the correct NI category.

Date of birth

Employees don’t start paying NI until they’re 16, so make sure the employee’s date of birth is correct:

Select the Employees tab.
Choose the relevant employee.
In the Personal Details section, check the Date of Birth.
If it is incorrect make the necessary change.

If you’ve processed the employee with the incorrect date of birth, correct their date of birth. Select Save. Next, follow our article Make changes to a completed pay run.

If you corrected the date of birth before completing payroll:

Delete the hours from each payment and deduction in this pay run.
Re-enter the payment and deduction values.

This will force the NI to recalculate using the correct date of birth.

Earnings subject to NI: Payments

An employee only pays NI on gross pay that is subject to NI. For example, a business expenses payment type is not subject to NI.

Any payment that doesn’t increase the NI value in the Edit Pay stage of a pay run is a net payment. It is not subject to NI calculations.

To make sure the payment is set up correctly:

Select the Settings tab and select Payment & Deductions.
Choose the payment you want to check.
In the Defined as section, check the payment is subject to National Insurance.

If it isn't, change the name and description to ‘Do Not Use’. Set up a new payment for the intended purpose, naming and describing it appropriately.

Correct any completed pay runs that used the incorrect payment. Replace it with the new payment.

Earnings subject to NI: Deductions

An employee only pays NI on gross pay that is subject to NI. A gross deduction reduces the amount of pay the employee pays NI on, such as unpaid leave. A net deduction reduces the employee’s net pay after NI calculates, such as union fees.

Any deduction that reduces the amount of NI the employee pays when you enter its rate is a gross deduction:

To make sure the information is correct, follow these steps:

Select the Settings tab, select Payment & Deductions.
Select the Deductions tab and choose the deduction you want to check.
Check the category.

If the category is Gross Deductions, the employee’s NI-able pay reduces by the amount of the deduction. This happens before NI calculates. The result is the employee pays less NI.

If your intention was not to reduce the Niable pay for the employee, change it's name and description to Do Not Use'. Set up a new deduction to replace it.

Correct any completed pay runs in which you used the incorrect deduction. Replace it with the new deduction.

Pay cycle

Payroll uses the HM Revenue & Customs (HMRC) weekly and monthly tables to calculate NI. So if the pay cycle is incorrect, the NI is incorrect.

For example, if you set up a weekly-paid employee as monthly-paid in error. You might find they don’t pay any NI at all, as their earnings are less than the monthly threshold for NI.

If you’ve completed a pay run using the incorrect pay cycle, you can’t re-process them using the correct pay cycle. Edit the incorrect pay run to reflect the amount of pay the employee would receive for that pay period.

For example, the employee is weekly-paid but you included them on a monthly pay run. Increase the amount of pay they receive to a monthly amount.

If the employee is monthly paid but you included them in the weekly pay run, reduce their pay to a weekly amount.

If you paid them on a weekly pay run in error, you need to pay them weekly for the rest of the tax month. Change them to monthly at the next available monthly period.

It is important you read our article Change how often you pay an employee.

Holiday pay - Advanced holiday pay

You may believe the NI is calculating too high or not as high as anticipated. Are you using a Holiday Payment?

There are two types of holiday pay in Sage Payroll. Holiday pay and Advanced holiday pay.

Holiday pay is usually a salary or weekly payment, subject to PAYE and NI.

Advanced holiday pay - used to pay a weekly paid employee in advance for their holidays. This is also subject to PAYE and NI, but there's a difference in the calculation

NOTE: Future pay runs exclude the employee for the period of their holiday. You should still run payroll for each period of the employee holiday.

NI calculates per pay period.

This means if you pay the employee 3 weeks' pay in one pay run, they will pay too much NI.

Holiday pay example:

In week 7, you are paying your employee for that week, plus 2 weeks holiday. That's 3 weeks in total (week 7, 8 and 9).

Your employee earns £300 per week.

You create a payment called holiday pay and pay the employee 3 x £300=£900.

The NI calculation used is:

£900-£242 (primary threshold) x 12%=£78.96

This does not take into account the 2 holiday weeks NI free pay. The employee pays too much NI.

Advanced holiday pay example:

Advanced holiday pay uses the free pay entitlement for each week into account.

That's £242 weekly allowance used each week of holiday taken.

The NI calculation is now:

£900 - (3 x £242) = £174 x 12% = £20.88

This takes into account the 2 holiday weeks NI free pay. The employee pays the correct amount of NI.

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