<blockquote>
<p>Do “employer” and “employee” National Insurance contributions actually place more burden on the employer and employee respectively?</p>
</blockquote>
<p>Government itself cannot choose by fiat how burden of a tax is distributed. This does not apply just to national insurance contributions, but all taxes in general (see Mankiw's Principles of Economics 8th ed, pp 227-40), ranging from VAT to inheritance taxes. Government can only choose who sends the money to the government and who has to bear the administrative burden (i.e. filling out forms etc), not who actually bears the <em>economic</em> burden.</p>
<p>But it is not true as you suggest that this automatically means the burden always falls on employees. It can also fall on employers, just government doesn't decide how much of this burden falls on employers. Market forces (more specifically, various elasticities, like elasticity of labor supply, elasticity of capital supply and other parameters of an economy etc), determine how this burden is distributed.</p>
<p>Hence, it is an empirical question how this burden is ultimately distributed, and the exact share will be different in different economies with different conditions. This being said, empirical studies generally show that most (but not all) of the burden of these contributions are born solely by labor (e.g. see <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1682041" rel="nofollow noreferrer">Roy-Cesar &amp; Vaillancourt (2010)</a>, <a href="https://www.journals.uchicago.edu/doi/abs/10.1086/209877" rel="nofollow noreferrer">Gruber (1997)</a>). This is also something one would theoretically expect given that labor supply is less elastic than supply of capital. In non-competitive markets, some of this burden might be shifted to consumers as well.</p>
<p>Consequently, the answer to your question is that the burden is placed mostly, but not wholly, on employees based on past evidence.</p>

CC BY-SA 4.0
2024-10-28T09:29:37.807Z
Perhaps you should be explicitly that it can also fall on customers - it’s there in the subtext but one of the important (in)eleasticities is how much of the increase cost can be passed on in prices. There’s also the relatively minor issue of taxes on taxes - if there are payroll taxes or insurance premiums assessed on payroll, then putting it on the employee will normally increase those as well.
Dale M
CC BY-SA 4.0
2024-10-28T10:52:44.680Z
@DaleM thanks for the remark, you are indeed correct, I added that explicitly
1muflon1
CC BY-SA 4.0
2024-10-27T15:18:30.780Z
2024-10-28T17:55:24.793Z
2024-10-28T17:55:24.793Z
1muflon1
<p>As the others have described, the burden of the two contributions is not really specifically on either. All in all, it's just part of the total amount paid by the employer which does not go into the employee's pocket.</p>
<p>However:</p>
<ul>
<li><p>The burden of any <strong>change</strong> to those contributions is for the relevant party:</p>
<ul>
<li>if the employee contribution increases, then the net salary for the employee decreases, while the amount paid by the employer does not change</li>
<li>if the employer contribution increases, then the net salary for the employee does not change, while the amount paid by the employer increases</li>
</ul>
</li>
<li><p>There are also interactions with changes in the relevant minimum wage which depend on how much is &quot;paid&quot; by each party, since that minimum wage is based on the gross salary &quot;between&quot; those two contributions, rather than either the net salary or the total amount paid.</p>
</li>
</ul>

CC BY-SA 4.0
2024-10-28T14:58:18.933Z
2024-10-28T14:58:18.933Z
jcaron
<p>In the UK small employers and sole traders can benefit from reliefs that apply to National Insurance as well. So if a company is currently below the relief maximum, some or all of the increase in Employer contributions will be negated. Increasing Employees NI would always pass the burden on to the Employee.</p>
<p>The rates of Employer National Insurance are all over the place, so I'm not prepared to even start estimating what sort of business or how many businesses would be protected or buffered from the changes that have not yet been announced.</p>
<p><a href="https://www.gov.uk/national-insurance-rates-letters" rel="nofollow noreferrer">National Insurance Rates</a></p>
<p><a href="https://www.fsb.org.uk/resources-page/what-is-the-employment-allowance-and-am-i-eligible.html" rel="nofollow noreferrer">Employment Allowances</a></p>
<blockquote>
<p>The Employment Allowance lets eligible employers reduce their National Insurance liability by up to £5,000 for the 2024/25 tax year. It’s designed to support smaller employers with their employment costs.</p>
</blockquote>

CC BY-SA 4.0
2024-10-29T14:42:57.827Z
2024-10-29T19:35:13.453Z
2024-10-29T19:35:13.453Z
Jontia
<p>I agree with the other answers that just because a mandatory tax is labelled as an &quot;employer contribution&quot; versus an &quot;employee contribution&quot; doesn't mean that is how the actual economic burden is distributed. An MIT economics lecture provides more information about who in society bears a tax burden: <a href="https://www.youtube.com/watch?v=BF1ZtGIjTik" rel="nofollow noreferrer">https://www.youtube.com/watch?v=BF1ZtGIjTik</a></p>
<p>There is a potential complication to the situation where the burden does seem to fall on the employer, and I will use Canada as an example. The Canadian Pension Plan (CPP) is analogous to the UK's National Insurance as a federal-level retirement scheme for all workers.</p>
<blockquote>
<p>What happens if your employee has multiple employers</p>
<p>If an employee leaves one employer during the year to start work with another employer, the new employer also has to deduct CPP contributions without taking into account what the previous employer paid. This is the case even if the employee has contributed the maximum amount during the previous employment.</p>
<p>Any overpayments will be refunded to employees when they file their income tax and benefit returns. As an employer, you are not entitled to a refund for the employer's share of the contributions.</p>
<p>— <a href="https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp.html#h_4" rel="nofollow noreferrer">https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp.html#h_4</a></p>
</blockquote>
<p>Similarly, Canada's Employment Insurance (EI) has this to say:</p>
<blockquote>
<p>What if the employee has different jobs</p>
<p>The EI annual maximum insurable earnings apply to each job the employee holds with different employers (different business numbers).</p>
<p>If an employee leaves one employer during the year to start work with another employer, the new employer also has to deduct EI premiums without taking into account what the previous employer paid. This is the case even if the employee has contributed the maximum amount during the previous employment.</p>
<p>Any overpayments will be refunded to employees when they file their income tax and benefit returns. As an employer, you are not entitled to a refund for the employer's share of the contributions.</p>
<p>— <a href="https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/employment-insurance-ei.html#h_6" rel="nofollow noreferrer">https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/employment-insurance-ei.html#h_6</a></p>
</blockquote>

CC BY-SA 4.0
2024-10-28T12:04:54.593Z
2024-10-28T12:04:54.593Z
Nayuki
<p>It can certainly make a difference in the short term.  I will compare the arithmetic for employee's national insurance (NI) at 10% and employer's NI at the same rate.  The actual rates in the UK are much more complicated than that but this will illustrate the principle.</p>
<p>Suppose an employee's gross monthly salary is £2,000.  Ignoring any taxes or deductions other than NI, the position will be as follows:</p>
<ul>
<li>Employee's NI: The employee receives £1,800 (£2,000 less the 10% NI which the employer will deduct and pay to the government).  The total cost to the employer is £2,000 (£1,800 paid to the employee and £200 paid to the government).</li>
<li>Employer's NI: The employee receives £2,000. The total cost to the employer is £2,200 (£2,000 paid to the employee and £200 paid to the government).</li>
</ul>
<p><em>If the gross salary is unchanged</em>, therefore, the employee is better off, and the employer worse off, with employer's NI than with employee's NI.</p>
<p>However, employees, finding themselves worse off with an increase in employee's NI, are likely to respond by seeking increases in salaries to maintain their standard of living.  Similarly, employers, finding themselves worse off with an increase in employer's NI, are likely to respond by seeking to reduce salaries in real terms so as to reduce their costs and maintain profitability.</p>
<p>A conventional <a href="https://www.khanacademy.org/economics-finance-domain/microeconomics/elasticity-tutorial/price-elasticity-tutorial/a/elasticity-and-tax-incidence" rel="nofollow noreferrer">analysis of price-elasticities of supply and demand</a>, as might be applied to a comparison of a tax on the purchase or sale of a good, would tend to suggest that the respective burdens on employees and employers would be the same in either case.</p>
<p>However, salary levels tend to be &quot;sticky&quot; at least in the short term. Employees, especially if unionised, tend to strongly resist reductions in nominal salaries. Downward adjustments to real salaries tend to take time. Employers may find it expedient to await suitable economic conditions and try to secure a reduction in real salaries by imposing or negotiating below-inflation salary increases. A study of wage adjustment by <a href="https://www.pure.ed.ac.uk/ws/portalfiles/portal/18533150/Wage_Adjustment_in_the_Great_Recession_and_Other_Downturns.pdf" rel="nofollow noreferrer">Elsby, Shin &amp; Solon</a> based on UK data 1975-2012 and US data 1979-2012 found that:</p>
<blockquote>
<p>downward wage rigidity may be less binding ... than is often supposed (Abstract)</p>
</blockquote>
<p>but nevertheless:</p>
<blockquote>
<p>wages undoubtedly are at least somewhat sticky (p 27)</p>
</blockquote>
<p>It is by no means certain, therefore, that the effects of increases in employee's NI and employer's NI will be the same. It is quite possible, especially in the short term, that the cost to employees will be less with employer's NI.</p>

CC BY-SA 4.0
2024-10-27T22:15:02.640Z
The stickiest salary issue is probably the minimum wage, as it is difficult for either employers or employees to change it.  If employee NI contributions are reduced and employer NI contributions are increased by an offsetting amount, then this is similar to the minimum wage being increased to the benefit of employees and paid for by employers, possibly affecting their willingness to employ workers receiving the minimum wage.
Henry
CC BY-SA 4.0
2024-10-29T11:27:38.747Z
I would say, short-term the difference is more generally that people have work contracts. If direct tax gets increased, my employer isn't going to raise my salary so my net pay is lower. If employer contributions are increased, I am similarly not going to agree to reduce my salary, so my net pay is unaffected even if the total costs for the employer goes up.
xLeitix
CC BY-SA 4.0
2024-10-27T14:23:48.860Z
2024-10-28T22:14:07.310Z
2024-10-28T22:14:07.310Z
Adam Bailey
<p>My intuition is that it shouldn’t make a difference whether a tax is “paid by the employee” or “paid by the employer”. Both can be framed equivalently as an increase to the cost to the employer of providing an employee with some given amount of (actually received) compensation.</p>
<p>Surely the only difference is the <em>nominal</em> pay received?</p>
<p>(Obviously I get that there are practical differences in who is affected and interactions with income tax - I’m focused though on generally whether the name actually indicates the burden-bearer)</p>
<p>At risk of making this political, I think it’s an important question because for example the UK Labour government has just announced a rise to <em>employer</em> NI after promising not to raise taxes for “working people”. It seems like this could just be a sleight of hand rather than actually taxing employers rather than employees.</p>

CC BY-SA 4.0
2024-10-29T09:15:43.523Z
Remember UK have a minimal wage with many jobs at the minimal wage.
Ian Ringrose
<taxation><uk>
Do “employer” and “employee” National Insurance contributions actually place more burden on the employer and employee respectively?
Monkle
# Do “employer” and “employee” National Insurance contributions actually place more burden on the employer and employee respectively?

(Asked by: username_0 on 2024-10-27)

My intuition is that it shouldn’t make a difference whether a tax is “paid by the employee” or “paid by the employer”. Both can be framed equivalently as an increase to the cost to the employer of providing an employee with some given amount of (actually received) compensation.

Surely the only difference is the *nominal* pay received?

(Obviously I get that there are practical differences in who is affected and interactions with income tax - I’m focused though on generally whether the name actually indicates the burden-bearer)

At risk of making this political, I think it’s an important question because for example the UK Labour government has just announced a rise to *employer* NI after promising not to raise taxes for “working people”. It seems like this could just be a sleight of hand rather than actually taxing employers rather than employees.

**Tags:** taxation, uk

> **Comments:**
> **username_1**: Remember UK have a minimal wage with many jobs at the minimal wage.  

---

## 5 answers

### Answer by username_7 on 2024-10-27. Score: 10 | Accepted answer

It can certainly make a difference in the short term. I will compare the arithmetic for employee's national insurance (NI) at 10% and employer's NI at the same rate. The actual rates in the UK are much more complicated than that but this will illustrate the principle.

Suppose an employee's gross monthly salary is £2,000. Ignoring any taxes or deductions other than NI, the position will be as follows:

* Employee's NI: The employee receives £1,800 (£2,000 less the 10% NI which the employer will deduct and pay to the government). The total cost to the employer is £2,000 (£1,800 paid to the employee and £200 paid to the government).
* Employer's NI: The employee receives £2,000. The total cost to the employer is £2,200 (£2,000 paid to the employee and £200 paid to the government).

*If the gross salary is unchanged*, therefore, the employee is better off, and the employer worse off, with employer's NI than with employee's NI.

However, employees, finding themselves worse off with an increase in employee's NI, are likely to respond by seeking increases in salaries to maintain their standard of living. Similarly, employers, finding themselves worse off with an increase in employer's NI, are likely to respond by seeking to reduce salaries in real terms so as to reduce their costs and maintain profitability.

A conventional [analysis of price-elasticities of supply and demand](https://www.khanacademy.org/economics-finance-domain/microeconomics/elasticity-tutorial/price-elasticity-tutorial/a/elasticity-and-tax-incidence), as might be applied to a comparison of a tax on the purchase or sale of a good, would tend to suggest that the respective burdens on employees and employers would be the same in either case.

However, salary levels tend to be "sticky" at least in the short term. Employees, especially if unionised, tend to strongly resist reductions in nominal salaries. Downward adjustments to real salaries tend to take time. Employers may find it expedient to await suitable economic conditions and try to secure a reduction in real salaries by imposing or negotiating below-inflation salary increases. A study of wage adjustment by [Elsby, Shin & Solon](https://www.pure.ed.ac.uk/ws/portalfiles/portal/18533150/Wage_Adjustment_in_the_Great_Recession_and_Other_Downturns.pdf) based on UK data 1975-2012 and US data 1979-2012 found that:

> downward wage rigidity may be less binding ... than is often supposed (Abstract)

but nevertheless:

> wages undoubtedly are at least somewhat sticky (p 27)

It is by no means certain, therefore, that the effects of increases in employee's NI and employer's NI will be the same. It is quite possible, especially in the short term, that the cost to employees will be less with employer's NI.

> **Comments:**
> **username_8**: The stickiest salary issue is probably the minimum wage, as it is difficult for either employers or employees to change it.  If employee NI contributions are reduced and employer NI contributions are increased by an offsetting amount, then this is similar to the minimum wage being increased to the benefit of employees and paid for by employers, possibly affecting their willingness to employ workers receiving the minimum wage.  
> **username_9**: I would say, short-term the difference is more generally that people have work contracts. If direct tax gets increased, my employer isn't going to raise my salary so my net pay is lower. If employer contributions are increased, I am similarly not going to agree to reduce my salary, so my net pay is unaffected even if the total costs for the employer goes up.  

---

### Answer by username_2 on 2024-10-27. Score: 7

> Do “employer” and “employee” National Insurance contributions actually place more burden on the employer and employee respectively?

Government itself cannot choose by fiat how burden of a tax is distributed. This does not apply just to national insurance contributions, but all taxes in general (see Mankiw's Principles of Economics 8th ed, pp 227-40), ranging from VAT to inheritance taxes. Government can only choose who sends the money to the government and who has to bear the administrative burden (i.e. filling out forms etc), not who actually bears the *economic* burden.

But it is not true as you suggest that this automatically means the burden always falls on employees. It can also fall on employers, just government doesn't decide how much of this burden falls on employers. Market forces (more specifically, various elasticities, like elasticity of labor supply, elasticity of capital supply and other parameters of an economy etc), determine how this burden is distributed.

Hence, it is an empirical question how this burden is ultimately distributed, and the exact share will be different in different economies with different conditions. This being said, empirical studies generally show that most (but not all) of the burden of these contributions are born solely by labor (e.g. see [Roy-Cesar & Vaillancourt (2010)](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1682041), [Gruber (1997)](https://www.journals.uchicago.edu/doi/abs/10.1086/209877)). This is also something one would theoretically expect given that labor supply is less elastic than supply of capital. In non-competitive markets, some of this burden might be shifted to consumers as well.

Consequently, the answer to your question is that the burden is placed mostly, but not wholly, on employees based on past evidence.

> **Comments:**
> **username_3**: Perhaps you should be explicitly that it can also fall on customers - it’s there in the subtext but one of the important (in)eleasticities is how much of the increase cost can be passed on in prices. There’s also the relatively minor issue of taxes on taxes - if there are payroll taxes or insurance premiums assessed on payroll, then putting it on the employee will normally increase those as well.  
> **username_2**: @DaleM thanks for the remark, you are indeed correct, I added that explicitly  

---

### Answer by username_4 on 2024-10-28. Score: 1

As the others have described, the burden of the two contributions is not really specifically on either. All in all, it's just part of the total amount paid by the employer which does not go into the employee's pocket.

However:

* The burden of any **change** to those contributions is for the relevant party:

  + if the employee contribution increases, then the net salary for the employee decreases, while the amount paid by the employer does not change
  + if the employer contribution increases, then the net salary for the employee does not change, while the amount paid by the employer increases
* There are also interactions with changes in the relevant minimum wage which depend on how much is "paid" by each party, since that minimum wage is based on the gross salary "between" those two contributions, rather than either the net salary or the total amount paid.


---

### Answer by username_5 on 2024-10-29. Score: 0

In the UK small employers and sole traders can benefit from reliefs that apply to National Insurance as well. So if a company is currently below the relief maximum, some or all of the increase in Employer contributions will be negated. Increasing Employees NI would always pass the burden on to the Employee.

The rates of Employer National Insurance are all over the place, so I'm not prepared to even start estimating what sort of business or how many businesses would be protected or buffered from the changes that have not yet been announced.

[National Insurance Rates](https://www.gov.uk/national-insurance-rates-letters)

[Employment Allowances](https://www.fsb.org.uk/resources-page/what-is-the-employment-allowance-and-am-i-eligible.html)

> The Employment Allowance lets eligible employers reduce their National Insurance liability by up to £5,000 for the 2024/25 tax year. It’s designed to support smaller employers with their employment costs.


---

### Answer by username_6 on 2024-10-28. Score: 0

I agree with the other answers that just because a mandatory tax is labelled as an "employer contribution" versus an "employee contribution" doesn't mean that is how the actual economic burden is distributed. An MIT economics lecture provides more information about who in society bears a tax burden: <https://www.youtube.com/watch?v=BF1ZtGIjTik>

There is a potential complication to the situation where the burden does seem to fall on the employer, and I will use Canada as an example. The Canadian Pension Plan (CPP) is analogous to the UK's National Insurance as a federal-level retirement scheme for all workers.

> What happens if your employee has multiple employers
>
> If an employee leaves one employer during the year to start work with another employer, the new employer also has to deduct CPP contributions without taking into account what the previous employer paid. This is the case even if the employee has contributed the maximum amount during the previous employment.
>
> Any overpayments will be refunded to employees when they file their income tax and benefit returns. As an employer, you are not entitled to a refund for the employer's share of the contributions.
>
> — <https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp.html#h_4>

Similarly, Canada's Employment Insurance (EI) has this to say:

> What if the employee has different jobs
>
> The EI annual maximum insurable earnings apply to each job the employee holds with different employers (different business numbers).
>
> If an employee leaves one employer during the year to start work with another employer, the new employer also has to deduct EI premiums without taking into account what the previous employer paid. This is the case even if the employee has contributed the maximum amount during the previous employment.
>
> Any overpayments will be refunded to employees when they file their income tax and benefit returns. As an employer, you are not entitled to a refund for the employer's share of the contributions.
>
> — <https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/employment-insurance-ei.html#h_6>


---

