Audience: All PAYE employees
National Insurance contributions (NICs) are a form of social insurance paid by employees, employers, and the self-employed in the United Kingdom. For most employed workers, NICs are deducted automatically through PAYE alongside income tax — and, like income tax, they are something many people pay without fully understanding. Yet National Insurance has a significant impact on both your take-home pay and your entitlement to important state benefits, including the State Pension.
This guide explains how National Insurance works for employees, what you pay, what you get in return, and why it matters to keep track of your NI record.
National Insurance was introduced in the United Kingdom in 1911, initially as a contributory system to provide insurance against sickness and unemployment. It has expanded considerably since then and now funds a range of state benefits, including the State Pension, Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay, Bereavement Support Payment, Jobseeker's Allowance, and the NHS.
National Insurance is separate from income tax, though both are collected through PAYE. The key distinction is that National Insurance contributions build up your entitlement to specific benefits — most notably the State Pension — based on the number of qualifying years you accumulate over your working life.
As an employed worker, you pay Class 1 National Insurance contributions. For the 2024/25 tax year, the rates are as follows. You pay no NIC on earnings up to the Primary Threshold of £12,570 per year. You pay 8% on earnings between £12,570 and £50,270. You pay 2% on earnings above £50,270.
Unlike income tax, National Insurance is calculated on a weekly or monthly basis rather than cumulatively across the year. This means that a large bonus in one month will attract NIC at 8% (or 2% on the portion above the upper threshold) in that pay period, and this will not be averaged out across the year.
Your employer also pays employer's Class 1 National Insurance on top of your wages. For 2024/25, employers pay 13.8% on employee earnings above the Secondary Threshold (£9,100 per year). This is a cost to the employer and does not appear as a deduction on your payslip, but it is worth being aware of as it forms part of the total employment cost.
Your National Insurance record tracks the number of qualifying years you have accumulated towards the State Pension and other benefits. A qualifying year is one in which you have paid (or been credited with) sufficient NICs. For the new flat-rate State Pension, you need 35 qualifying years for the full amount (currently £221.20 per week in 2024/25), and at least 10 qualifying years to receive anything at all.
You can check your NI record at any time through your Personal Tax Account on gov.uk. The record will show how many qualifying years you have, whether there are any gaps, and an estimate of your State Pension based on your current record.
Gaps in your NI record can arise for various reasons — periods of self-employment where you did not pay sufficient NICs, time spent abroad, periods of low income below the Lower Earnings Limit, or career breaks. It is important to identify and address gaps as early as possible, since the opportunity to fill them voluntarily is time-limited.
If you are not earning enough to pay NICs — or are not working at all — you may still be able to protect your NI record through National Insurance credits. Credits are awarded automatically in many circumstances, including when you are claiming Child Benefit for a child under 12 (even if you do not actually receive the payment due to the High Income Tax Charge), when you are receiving certain benefits such as Jobseeker's Allowance or Employment and Support Allowance, and when you are on Statutory Sick Pay.
Carer's credits are also available to people who provide at least 20 hours of care per week to someone who receives certain disability benefits. If you are caring for a family member or friend and taking time away from paid work, it is worth checking whether you are entitled to carer's credits so that your NI record is not affected.
If your NI record has gaps and you do not have enough qualifying years for a full State Pension, you may be able to make voluntary Class 3 NIC contributions to fill them. The cost of a voluntary year is £824.20 for 2024/25. Given that each qualifying year adds approximately £6.32 per week (£328.64 per year) to your State Pension, filling gaps is often highly cost-effective — particularly if you are close to State Pension age.
You can generally fill gaps going back six years. However, HMRC has extended the deadline for filling gaps going back to 2006 on several occasions, so it is worth checking the current deadline if you have older gaps to consider. Checking your NI record and taking advice from the DWP's Future Pension Centre before making voluntary contributions is recommended.
The State Pension age is currently 66 for both men and women. It is scheduled to rise to 67 between 2026 and 2028, and to 68 at a later date still to be confirmed by the government. When you reach State Pension age, you stop paying National Insurance — even if you continue working.
It is worth obtaining a State Pension forecast well in advance of retirement, so you know what to expect and can make informed decisions about whether to fill any gaps in your record. The forecast is available through your Personal Tax Account or by requesting a BR19 form from the Pension Service.
**Disclaimer: ***This article is for general information purposes only and does not constitute tax advice. Tax rules can change and individual circumstances vary. Always consult a qualified tax adviser or contact HMRC directly for advice specific to your situation.*