Starting from 6 April, 2015, Employer’s National Insurance Contributions (NICs) will no longer be available for employees aged below 21. This means the employers will not have to pay Class 1 secondary NICs on earnings up to the Upper Secondary Threshold (UST) for under 21 employees.

To be more precise about this change, the rate of 13.8% on earnings above Secondary Threshold (ST) will be reduced to 0% for employees under 21 with earnings between Secondary Threshold (ST) and Upper Secondary Threshold (UST) from 6 April, 2015 itself.

For the tax year 2015 to 2016, the value of UST will be equal to the Upper Earnings Limit (UEL).

The government has further estimated employers of nearly 1.5 million individuals will be benefited from this change as they are the ones who will be benefited from this change.

Employers who employ employees aged between 16 and 21 will now have to choose one of the seven new National Insurance Categories while accessing their NICS. These seven new NI categories have been introduced especially for accommodating this change. Hence, it is the responsibility of employers to put the right categories according to the relevant age of the employees.

The seven 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

Among these seven categories, V, I and K will be removed in April 2016. This will mark the end of ‘contracted-out’ status in relation to salary-related occupational pension schemes.

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