Do You Pay Employers Ni on Settlement Agreement

When it comes to settlement agreements and the payment of National Insurance (NI) contributions, there can often be confusion and uncertainty. Are employers required to pay NI contributions on settlement agreements? The answer is, it depends.

Firstly, it`s important to understand what a settlement agreement is. A settlement agreement is a legally binding contract between an employer and employee that sets out the terms of an agreed settlement. It`s often used to end an employment relationship on agreed terms, such as in cases of redundancy or dismissal.

In terms of National Insurance contributions, employers are generally required to pay NI contributions on most payments made to employees, including wages, bonuses, and benefits. However, settlement agreements can be an exception to this rule.

If the settlement agreement includes a payment in lieu of notice (PILON), then employers are required to deduct and pay NI contributions on that amount. This is because the payment is considered earnings and should be subject to NI contributions.

On the other hand, if the settlement agreement does not include a PILON and is only paying out statutory redundancy pay or a sum for damages, then NI contributions do not need to be paid by the employer.

It`s important to note that NI contributions are only required to be paid by the employer on payments made to the employee. If the settlement agreement includes any payments made to third parties, such as solicitor`s fees or payments to a pension fund, then NI contributions are not required.

In summary, whether or not employers are required to pay National Insurance contributions on settlement agreements depends on the nature of the payment made, specifically whether it includes a payment in lieu of notice. It`s important for employers to understand their obligations and ensure they are complying with HMRC regulations to avoid any potential penalties. It`s always advisable to seek professional advice if unsure.