National insurance is made up of two different elements. The first is the employee’s contribution, which is taken from the employee’s pay and the second is the contribution which is made by the employer.
The new law relating to national insurance benefits employers who employ under 21’s and encourages businesses to recruit more under 21 year old’s. With unemployment rates for this age group at its lowest in 20 years, this has been implemented to encourage recruitment of these individuals into the workplace. This might affect the private health insurance sector.
As an employer, you are no longer required to pay Class 1 Secondary NIC’s on earnings which will go to a new upper secondary threshold. This means that it will save you £500 for hiring those who earn under £12,000 and £1,000 or more of a saving for those under 21’s who earn £16,000. This is an important benefit for employers and can mean making some good savings in national insurance contributions.
This new change in the law means that you will not need to pay anything on secondary contributions for this group. In order to pay 0%, the earnings must be between ST and UST. However, the basic set up of national insurance will not change.
When employers have 21 year old’s who are in contracted out employment, they will be entitled to a rebate when the earnings are between the Lower Earnings and Upper Accrual Point. This rebate will go no further than the following year, 5th April 2016.
It is important to be aware of the category letter for your employee, as this will affect the national insurance contribution as well as PPI claims . It is up to the employer to keep track of this as it is allocated based on the age and circumstance of the employee. There are 7 new national insurance categories to choose from.
The contribution rates for national insurance for under 21’s will depend on what the employee earns and their category letter. These may need to be amended to bring them in line with the new rates.
You can find some examples of the employee contribution for under 21’s.
The payroll system you are using should automatically deduct the right amount of payroll and national insurance from the employee and this will be based on the tax code and the category letter. The information will also be shown on the employee’s pay slip. It is therefore important that you make sure the category letter is correct for all employees who are under 21 years old. This should be thoroughly checked by payroll to ensure you are meeting with these legal requirements.
What to tell employees
The new laws for under 21 year old’s will not affect the contribution made by employees, it only benefits employer’s contribution. Employees may notice a change in their category letter, but this will be the only change. It will not affect any other part of the employee’s payments, including social security etc. The change is only for the benefit of employers and will not affect any other aspects of payment.