If you employ anyone under 21 years old you will no longer have to pay Class 1 secondary National Insurance contributions on earnings up to the new Upper Secondary Threshold (UST) for those employees.

The employee will still continue to pay employee NICs.

This change comes into effect from 6 April 2015 so be prepared to change the NI Category letters of those employees to ensure you’re paying the correct amount of NI contributions.


This move complements other government policies to encourage employers to employ younger staff and reduce youth unemployment. The government estimates employer NICs liability for nearly 1.5 million employees aged between 16 and 20 will be eliminated.

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.

What you can tell your employees

You don’t really need to tell them anything – employees will continue to pay the standard rate of primary Class 1 NICs through their salary so 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 which may prompt them to query the change with you.


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