In the U.K, there are different classes of national insurance employers and employees are expected to pay. How much they pay depends on their employment status and their earnings.
Key points:
- The upper earnings limit (UEL) sets a cap on the standard NIC rate; income above the cap is charged at a reduced NIC rate.
- Employers must factor in the UEL when calculating employee deductions.
- NIC thresholds—including UEL—are reviewed and updated annually by the UK government.
- The UEL only applies to employees in National Insurance category A (standard employment), with some exceptions.
HM Revenue & Customs sets different thresholds every year to help employers determine how much to deduct from their employees’ paychecks.
The upper earnings limit (UEL) is a key threshold used to calculate how much National Insurance (NIC) is deducted from employee payroll. It sets the maximum income level on which employees pay the standard NIC rate of 12%. Income above this cap is charged at a reduced rate of 2%, helping higher earners retain more of their income while still contributing. These contributions fund important social benefits—including statutory sick days, pensions, and other public services—making the UEL not just a tax ceiling, but a mechanism for balancing revenue collection with affordability.
As a side note, here’s also Class 2 national insurance, which applies to people who are self-employed and Class 3, which applies to voluntary contributions.
Upper and lower earnings limits and primary threshold
There are three main thresholds, including lower earnings limit (LEL), primary threshold, and upper earnings limit (UEL). To fully understand how the UEL works, it’s helpful to first clarify the three key earnings thresholds that determine NIC contributions:
Primary threshold – primary threshold is the minimum amount of money an employee needs to earn to start paying Class 1 national insurance contributions.
Lower earnings limit – employees who do not reach the primary threshold in their earnings but do earn an amount equivalent to or above the lower earnings limit don’t have to pay NIC but are still entitled to the benefits
Upper earnings limit – employees are required to pay the regular amount of NIC on anything between primary threshold and the upper earnings limit, but anything above the upper earnings limit they can pay a smaller amount of NIC lower rate
How does upper earnings limit work?
New national insurance bands and rates are generally announced during the Chancellor of the Exchequer’s Budget or Autumn Statement.
In March 2023, for example, Chancellor Jeremy Hunt announced the following rates and caps for upper earnings threshold:
| Threshold | Annual | Monthly | Weekly |
| Primary threshold | £12,570 | £1,048 | £242 |
| Upper earnings limit | £50,270 | £4,189 | £967 |
| NIC rate below UEL | 12% | — | — |
| NIC rate above UEL | 2% | — | — |
Source: UK Government – NIC Thresholds and Rates 2023–24
These rates apply primarily to employees in NIC category A—standard employment contracts. Special categories like apprentices under 25 (category H) or workers over state pension age (category C) may follow different rules.
For example, if an employee earns £60,000, NIC is calculated at 12% on the first £50,270, and 2% on the remaining £9,730. This structure limits how much employees contribute once their income exceeds the UEL.
Managing earnings thresholds on a global scale
Just like in the UK, national insurance rates and bands are generally updated every year. This goes for thresholds set in other countries, as well.
To manage and stay on top of these changes or updates, companies need to constantly be in contact with local tax and compliance experts to make sure they’re fully updated. This can get messy and time consuming.
One way to get through this hurdle is by partnering with a global payroll platform that offers local compliance expertise but can also automate the entire process and ensure that updates are made automatically across different countries.
In companies with operations across the UK and EU, payroll teams may need to adjust deduction logic every April based on HMRC’s NIC updates. For example, a London-based employee earning over the UEL may trigger different employer contributions compared to their colleagues in Ireland, due to varying NIC rules and thresholds between jurisdictions.
FAQs
Q: How does the upper earnings limit affect NIC contributions?
A: It sets a cap for the standard NIC rate. Income above the UEL is charged at just 2% rather than the standard 12%, meaning higher earners keep more of their income above the cap.
Q: Who sets the upper earnings limit?
A: The UEL is reviewed and set annually by HM Revenue & Customs (HMRC) and is usually announced in the UK Chancellor’s Budget or Autumn Statement.
Q: Does the UEL apply to everyone?
A: No. It generally applies only to employees under NIC category A. Apprentices, employees over the state pension age, and others in special categories may not be subject to the same rates.
Q: How often do UEL thresholds change?
A: They typically change once per tax year (April to April), but are subject to policy shifts in UK fiscal planning.
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