National Insurance (NI) is the second-biggest deduction from most UK payslips — yet many employees don't fully understand how it works or that they can legally reduce it.
This guide covers everything you need to know about NI in 2024/25.
See your NI savings
Enter your salary to see exactly how much NI you pay and how salary sacrifice reduces it.
What is National Insurance?
National Insurance is a tax on earnings paid by both employees and employers. It funds state benefits including the State Pension, NHS, and unemployment support.
Unlike income tax, NI is calculated on a weekly or monthly basis — not annually. This matters if your income varies month to month.
Employee NI rates in 2024/25
| Earnings band | NI rate |
|---|---|
| Up to £12,570/year (£1,047.50/month) | 0% |
| £12,571 to £50,270/year | 8% |
| Over £50,270/year | 2% |
The threshold where you start paying NI (£12,570) is the same as the income tax Personal Allowance in 2024/25.
Employer NI rates
Your employer also pays NI on your earnings:
- 13.8% on earnings above £9,100/year (the Secondary Threshold)
This is a significant cost for employers — and it's why many are willing to pass NI savings back to employees through salary sacrifice schemes.
How NI differs from income tax
Income tax is calculated cumulatively across the year. NI is calculated per pay period. If you receive a large bonus in one month, you may pay more NI than if the same amount was spread across the year.
Key differences:
| Income Tax | National Insurance | |
|---|---|---|
| Calculated | Annually (cumulative) | Per pay period |
| Applies to | Most income | Employment income only |
| Pension contributions | Reduce taxable income | Reduce NI if via salary sacrifice |
| Dividends | Yes | No |
| Rental income | Yes | No |
How salary sacrifice reduces your NI
This is the key point most employees miss: salary sacrifice reduces your NI bill, not just your income tax.
When you sacrifice £200/month into your pension:
- Your gross pay falls by £200
- You pay 8% less NI on that £200 = £16/month saved
- Over a year: £192 saved in NI alone
For a higher earner sacrificing £500/month, the NI saving is £40/month (£480/year) — on top of the income tax saving.
Regular pension contributions paid from net pay (relief at source) do NOT reduce your NI. Only salary sacrifice does. This is why salary sacrifice is more tax-efficient for most employees.
The employer NI saving — and how to benefit
When you sacrifice salary, your employer saves 13.8% NI on the sacrificed amount.
On a £2,400/year sacrifice, your employer saves £331.
Many employers have a policy of passing some or all of this saving back into your pension. It's worth asking your HR or payroll team — it's essentially free money.
NI and the State Pension
Paying NI builds up your entitlement to the State Pension. You need 35 qualifying years of NI contributions for the full new State Pension (£221.20/week in 2024/25).
Salary sacrifice reduces your gross pay, which means lower NI contributions. If you're close to retirement and haven't yet built up 35 qualifying years, check your NI record at gov.uk before making large sacrifices.
You can check your NI record and State Pension forecast at gov.uk/check-state-pension.
NI and benefits
Some state benefits are linked to NI contributions, including:
- State Pension
- Contribution-based Jobseeker's Allowance
- Contribution-based Employment and Support Allowance
- Maternity Allowance
If your earnings fall below the Lower Earnings Limit (£6,396/year in 2024/25) due to salary sacrifice, you may lose NI credits. This is very unlikely for most employees but worth checking if you're on a low salary.
Class 1, 2, and 4 NI — what's the difference?
| Class | Who pays | On what |
|---|---|---|
| Class 1 | Employees and employers | Employment earnings |
| Class 2 | Self-employed | Flat rate (£3.45/week in 2024/25) |
| Class 4 | Self-employed | Profits above £12,570 |
This guide focuses on Class 1 NI for employees. If you're self-employed, salary sacrifice doesn't apply in the same way.
How to calculate your NI
For a salary of £45,000:
- Earnings above £12,570 = £32,430
- NI at 8% = £2,594/year
- Monthly NI = £216
With £3,000/year salary sacrifice:
- Adjusted salary = £42,000
- Earnings above £12,570 = £29,430
- NI at 8% = £2,354/year
- NI saving = £240/year
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Calculate your exact NI savings
See how salary sacrifice reduces your National Insurance contributions.
Calculate My Tax Savings →Summary
- Employee NI is 8% on earnings between £12,570 and £50,270
- Salary sacrifice reduces your gross pay, cutting your NI bill
- Your employer also saves 13.8% NI — ask if they pass this back
- Check your NI record if you're concerned about State Pension entitlement
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