Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

National Insurance Manual

NIM02040 - Class 1 NICs : Earnings of employees and office holders : Sums paid under a contract of employment

Any payment which is made under the terms and conditions of a contract of employment is earnings for the purposes of NICs because this is the remuneration which an employee receives in return for providing services to their employer.

In order to decide if a payment is “contractual” (that is, made under the contract of employment) it may be necessary to consider

  • the terms of the written contract
  • the terms of any amendments to the contract contained in subsequent agreements, letters or minutes of company meetings
  • additional terms and conditions covered in staff handbooks, notices and circulars.

In the case of directors it may also prove necessary to look at what is contained in the company’s Memorandum and Articles of Association. This will be particularly relevant where the director has no written contract.

It is important to distinguish between payments made under a contract of employment and payments made in respect of the termination of the employment. (See NIM02510 for guidance regarding compensation for loss of office and NIM02580 for redundancy payments).