PAYROLL INSIGHT
National Insurance: history and application
LoraMurphy ACIPP, CIPP senior policy liaison officer, reveals details of this employment andwelfare keystone
A long with PAYE (pay as you earn) and pension deductions, National Insurance (NI) is another key deduction element that the majority of workers are accustomed to seeing on their payslips on a regular basis. Although we may moan and grumble about the detriment to the net pay that we eventually receive, it is important to remember that NI was implemented as a form of protection against times of hardship, and still acts in that fashion, even over a century after its initial introduction. It affects most of us at some point or, indeed, throughout our working lives but also extends into our retirement as the state pension is predominantly funded by ‘live’ NI contributions (NICs). Given its prevalence within modern society, it seemed appropriate to study its origins and history, to explore the various classes of NICs and, most interestingly, to investigate how the NI fund is spent, and which classes contribute to which benefits. A brief history The National Insurance Act 1911 formed the basis of NI as we know it today, albeit
on a considerably different basis. The fundamentals, however, remain unchanged, as both employees and employers have always had to pay NICs and the NI Fund always granted employees entitlement to certain benefits. Currently, employee and employer contributions are submitted electronically through the employer’s real time submissions to HM Revenue & Customs (HMRC), with payment of the due amounts made later by the employer. Historically, however, employers were expected to buy the relevant stamps at the post office and attach them to contribution cards on behalf of their employees. It was an entirely manual process as opposed to the technological treatment of NICs that we observe within payroll departments today. ...state pension is predominantly funded by ‘live’ NI contributions...
health and pension benefits and the other associated with unemployment benefit. The former was run by trusted societies and unions whilst the latter was a scheme controlled solely by the government. This soon changed with the arrival of the ‘welfare state’ in 1948, which heralded the homogenisation of the separate stamps resulting in one singular stamp to cover all benefits. Things did not remain that simple, as they never do in the payroll sphere, and in 1975 the stamps became redundant as contributions were no longer paid at a blanket flat rate that was applicable to all. Instead, NICs were calculated based on the level of earnings an individual received and were collected via PAYE, at the same time as income tax. The NICs of this era were much more in line with how we treat and process it today, in stark contrast with how it initially originated all those years ago. Categories and classes We are currently immersed in a society where there are not only a multitude of different NI classes to observe, but also
There were two individual schemes at that point in time, one dealing with
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| Professional in Payroll, Pensions and Reward | December 2019 - January 2020 | Issue 56
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