Abolition of employer National Insurance contributions for under 21s: employer guide

Published 5 December 2014

Key facts

From 6 April 2015 employers with employees under 21 years old will no longer have to pay Class 1 secondary National Insurance contributions (NICs) on earnings up to the Upper Secondary Threshold (UST) for those employees.

The zero rate won’t apply to Class 1A or Class 1B NICs. Class 1 secondary NICs will apply if the employee is earning above the UST.

New category letters

If you employ someone aged over 16 but under 21 you’ll have to choose 1 of the 7 new National Insurance categories when assessing their secondary NICs. It’s the employer’s responsibility to ensure the correct category letter has been applied based on the age and circumstances of the employee.

The 7 categories are:

  • M - not contracted-out standard rate contributions
  • Z - not contracted-out deferred rate contributions
  • Y - mariners not contracted-out standard rate contributions
  • P - mariners not contracted-out deferred rate contributions
  • V - mariners contracted-out salary related contributions
  • I - contracted-out salary related standard rate contributions
  • K - contracted-out salary related deferred rate contributions

Three of the new letters (V, I and K) will be removed in April 2016 in line with the ending of ‘contracted-out’ status in relation to salary-related occupational pension schemes.

The structure of National Insurance will continue, but incorporate the changes introduced. There are no changes to the rules which set out how Class 1 NICs are assessed. Bonus pay, holiday pay and other payments will continue to follow the same calculation principles as they do now.

Details of the new rates

Employees must be aged over 16 but under 21 years old for the new category letters to apply.

The current rate of secondary Class 1 NICs for the tax year 2014 to 2015 is 13.8% on earnings above the Secondary Threshold (ST) of £153 per week - or its equivalent for pay periods that are longer than 1 week.

From 6 April 2015 that rate is reduced to 0% for those employees who are under the age of 21 with earnings between the ST and the UST. The value of the UST for the tax year 2015 to 2016 will be the same as the Upper Earnings Limit (UEL). There’s no:

  • statutory link to the UEL - this could change in subsequent years
  • reduction in the rate of Class 1 secondary NICs on earnings above this UST

Any decision on the level of the UST will be announced by the government. There’s no reduction in the rate of Class 1 secondary NICs on earnings above this UST.

The role of the secondary contributor isn’t removed. They’re still regarded as secondary contributors and will be legally required to carry out any other obligations (for example administering statutory payments) imposed by statute. This applies even though the amount of the contribution they will be required to pay is 0% on earnings up to the UST.

Introduction of the under 21 secondary rate coincides with the penultimate year of contracting-out before the new State Pension is implemented. Employers with employees under 21 years old and in contracted-out employment, will be entitled to a secondary contracted-out rebate on all earnings between the Lower Earnings Limit and the Upper Accrual Point. The rebate will cease on 5 April 2016 when all contracted-out category letters will be removed.

If you need to make an amendment

The process that’s currently in place for any corrections will continue – the guidance can be found in helpbook CWG2.

What you can tell your employees

Employees will continue to pay the standard rate of primary Class 1 NICs through their salary. They won’t see any reduction in their payments. It’s employers who will benefit from this change. Employee’s entitlement to contributory social security benefits, including State Pension won’t be affected. Existing employees may notice a change to the National Insurance category letter recorded on their payslip.


HM Revenue and Customs have provided some basic examples.

Further details are in the 2015 to 2016 helpbook CWG2.