What the 15% Employer NIC Rate Means for Your Commission Budget in 2026/27

TL;DR: The employer Class 1 NIC rate is 15% on earnings above £5,000 per year as of April 2025. For a sales rep earning a £55k base + £20k commission, the loaded cost to the employer is £23,000 — not £20,000 — because the £20k commission sits entirely in the 15% NIC zone. This £3,000 employer NIC cost is often forgotten in commission budgeting, leading to 10–15% underestimation of true payout costs. Understanding this distinction is essential for FY26/27 budget planning.

Key takeaway: A £20,000 commission payout costs the company £23,000 when employer NIC is factored in.

How to calculate and pay NIC on commission: The essentials

Is commission subject to National Insurance?

Yes. Commission payments are treated as earnings for Class 1 National Insurance purposes and are taxed on exactly the same basis as salary. There is no preferential treatment for variable pay — HMRC's position is clear: "Commission payments must be included in gross pay" (NIM02075).

How is employee NIC deducted from commission?

Employee (primary) Class 1 NIC is deducted through PAYE in the pay period when commission is paid. For 2025/26 and 2026/27, the employee pays:

• 0% on earnings up to £12,570/year (primary threshold)
• 8% on earnings between £12,570 and £50,270 (upper earnings limit)
• 2% on earnings above £50,270

These rates apply to total earnings in the pay period — salary plus commission combined. Your payroll software calculates the liability automatically when you include commission as additional gross pay in the payroll run.

How do I calculate employer NIC on commission?

Employer (secondary) Class 1 NIC is 15% on all earnings above £5,000 per employee per year (HMRC rates). Unlike employee NIC, there is no upper limit — the 15% rate applies to every pound above the threshold.

Worked example: A sales rep earns £2,500/month base salary (£30,000/year) and receives a £1,000 commission payment in July.

Calculation	Amount
Monthly base salary	£2,500
Commission this month	£1,000
Total gross pay this month	£3,500
Annual earnings so far (7 months)	£18,500
Less: Secondary threshold (annual)	£5,000
Earnings subject to employer NIC	£13,500
Employer NIC due (15% of £13,500)	£2,025

The £1,000 commission adds £150 of employer NIC (15% × £1,000) because the rep is already well above the £5,000 threshold from their base salary alone.

For employee NIC on the same payment, the rep would pay roughly 8% on most of the £3,500 (since they're between the primary threshold and upper earnings limit), plus income tax at their marginal rate.

When and how do I report and pay NIC on commission?

You report NIC on commission through your Full Payment Submission (FPS) to HMRC on or before the payment date — the same RTI submission that reports salary. The commission must appear as additional gross earnings in that pay period.

Payment deadlines:

• Electronically (faster payment/BACS): by the 22nd of the following tax month
• By cheque: by the 19th of the following tax month

For example, commission paid in July's payroll (tax month 4) must be reported via FPS by 31 July, and the combined PAYE/NIC payment is due by 22 August.

Should I use payroll software or calculate manually?

Use payroll software. Manual NIC calculations are error-prone because rates vary by earnings band, thresholds are annual but applied cumulatively each pay period, and you must maintain year-to-date totals for each employee. Software like Xero handles the cumulative arithmetic, generates the FPS automatically, and reduces the risk of underpayment penalties.

If you export commission data to payroll, ensure it's flagged as NIable earnings (not as a non-NIable payment or expense reimbursement), so the software applies Class 1 NIC correctly.

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Most UK commission plans we look at are priced as if the only number that matters is the payout. Base + commission = cost. Sign it off, move on.

That model has been wrong for a long time. It's been wrong by more since 6 April 2025, when the employer (secondary) Class 1 National Insurance rate jumped to 15% and the secondary threshold dropped to £5,000. We're now into the second full budget cycle under those rules — FY26/27 plans are being signed off as you read this — and finance leaders are still under-costing commission by 10–15% because they forget to load it.

This isn't a tax explainer for reps (we have that one already). This is the cost-side write-up: what a commission pound actually costs your P&L, why OTE-as-cost is a lie, and what to do about it in your FY26/27 model.

The rules, in 90 seconds

For the 2025/26 tax year (and unchanged going into 2026/27 at the time of writing):

• Employer Class 1 NIC rate: 15% on earnings above the secondary threshold (HMRC: Rates and thresholds for employers 2025 to 2026).
• Secondary threshold: £5,000 per year (£96/week, £417/month). Every pound of an employee's earnings above that attracts 15% employer NIC.
• Commission counts as earnings for Class 1 purposes. HMRC's National Insurance Manual is blunt: "Commission payments must be included in gross pay" (NIM02075). There's no preferential treatment because the money is variable.
• Employment Allowance is £10,500 for eligible employers, and the previous £100,000 secondary NIC liability cap was removed from April 2025 (gov.uk: Employment Allowance eligibility).
• Apprenticeship Levy at 0.5% kicks in once your annual pay bill exceeds £3 million, against a £15,000 allowance (HMRC rates page).

The headline change everyone remembers from the Autumn Budget 2024 — rate up from 13.8% to 15%, threshold down from £9,100 to £5,000 — was set out in HMRC's policy paper at the time (Changes to the Class 1 NICs Secondary Threshold and rate). What gets forgotten is that the threshold drop matters as much as the rate rise for commission. Anyone earning a base salary above £5,000 is already over the threshold, so every commission pound is taxed at the full marginal 15%. There is no employer-side equivalent of the rep's £50,270 upper earnings limit — for the employer, NIC keeps applying right up the income ladder.

The worked example: £20k commission on a £55k base

Take an AE on a £55,000 base who closes enough to earn a £20,000 commission payment in the year. What do they actually cost you?

Line	Value
Base salary	£55,000
Commission	£20,000
Gross earnings	£75,000
Employer NIC on base only: (55,000 − 5,000) × 15%	£7,500
Employer NIC on total earnings: (75,000 − 5,000) × 15%	£10,500
Incremental employer NIC attributable to the commission	£3,000
True cost of the £20k commission payout	£23,000

That's a 15% loading on the marginal commission pound — because the rep is already comfortably above the £5,000 secondary threshold from their base. The secondary threshold gets fully absorbed by salary; the variable pay sits in the 15% zone end to end.

If you run a pay bill above £3m, add 0.5% Apprenticeship Levy on top of that — another £100 on a £20k commission, so the loaded cost becomes £23,100. We'll leave pension out for the moment because qualifying-earnings treatment varies by scheme definition, but most defined-contribution schemes that include commission will add another 3% on top, taking you to roughly £23,700.

The headline OTE number — the one that ends up in your hiring spreadsheet — was £75,000. The real cost was at least 4–5% higher than that, and the incremental cost of paying out the variable portion was 15% higher than the cheque the rep took home.

OTE is not a cost number. Stop using it like one.

This is the contrarian beat: stop building your sales budget on OTE.

OTE is a recruiting and motivation construct. It tells the rep what they can earn at 100% attainment. It does not tell finance what the role costs. The bridge from OTE to loaded cost is:

Loaded cost ≈ OTE + 15% × (OTE − £5,000) + apprenticeship levy if applicable + employer pension on qualifying earnings

For reps already above the secondary threshold on base alone, that simplifies on the marginal commission pound to payout × 1.15 (before levy and pension).

Here is what that looks like across four common UK SaaS rep profiles, all at 100% attainment:

Profile	Base	OTV (variable)	OTE	Employer NIC	Loaded cost	Hidden uplift on OTE
BDR (70/30 on £40k OTE)	£28,000	£12,000	£40,000	£5,250	£45,250	13.1%
Mid-market AE (60/40 on £100k OTE)	£60,000	£40,000	£100,000	£14,250	£114,250	14.3%
Enterprise AE (50/50 on £160k OTE)	£80,000	£80,000	£160,000	£23,250	£183,250	14.5%
Sales leader (70/30 on £180k OTE)	£126,000	£54,000	£180,000	£26,250	£206,250	14.6%

Notice how the uplift converges on 15% as compensation rises — the £5,000 secondary threshold becomes a rounding error against larger packages. For anyone earning above about £30k, you're paying close to 15% on every additional pound, and the days when you could comfortably budget a sales team at base + commission and round generously are over.

What about Employment Allowance?

For smaller employers, Employment Allowance reduces the headline pain — but less than people think.

EA is £10,500 for 2025/26 (HMRC rates page). It's a per-group allowance — connected companies share one — and there are exclusions (single-director-only payrolls, public sector bodies, employees doing wholly personal work, et cetera; check the eligibility rules before banking on it).

The genuinely useful change from April 2025 was the removal of the £100,000 secondary NIC liability cap, so more growing employers now qualify than did before. But £10,500 doesn't go far in a sales org. A five-rep team paid an average £80k each generates about £56,250 of annual employer NIC; EA wipes out roughly 19% of that, leaving £45,750 net. Helpful, but not a strategy.

The practical implication: if you're a sub-10-rep team modelling your first proper comp plan, build a small EA credit into the year-one budget and stop. Don't apportion EA against individual reps or against commission specifically — it's a lump credit against the employer's overall Class 1 bill, and treating it as a per-head subsidy makes your unit economics look better than they are.

More frequently asked questions

Does the £5,000 secondary threshold apply per employee or company-wide?

The £5,000 secondary threshold applies per employee, per year. Each employee's earnings are assessed individually — you don't pool earnings across your workforce. This means every employee effectively has their own £5,000 band where no employer NIC is due, and earnings above that trigger the 15% charge.

Can I claim Employment Allowance to offset employer NIC on commission payments?

Yes, but Employment Allowance is a single annual credit of £10,500 applied against your total employer Class 1 NIC bill, not a per-employee or per-payment offset. It doesn't distinguish between NIC arising from base salary versus commission — it simply reduces your overall secondary NIC liability. For a sales org with significant variable pay, EA rarely covers more than 15–20% of your total employer NIC cost.

How does Apprenticeship Levy interact with commission payments?

Apprenticeship Levy is 0.5% of your total annual pay bill once it exceeds £3 million, with a £15,000 annual allowance. Commission counts as part of gross pay for levy purposes, so higher commission payouts increase your levy liability if you're near or above the threshold. Unlike employer NIC, the levy applies to the entire pay bill (not just earnings above a threshold), so the marginal cost of a commission pound is 0.5% levy plus 15% employer NIC if you're a levy payer.

What's the difference between employer NIC and employee NIC on commission?

Employee NIC is deducted from the rep's gross commission payment and reduces their take-home pay; it's their cost, not yours. Employer NIC is an additional charge on top of the gross commission, paid by the company to HMRC, and never appears on the rep's payslip. For a £20,000 commission, the rep pays roughly £1,600 in employee NIC (reducing their net to around £18,400 after income tax as well), while the employer pays £3,000 in employer NIC on top of the £20,000 gross — making the true cost to the company £23,000.

When do I actually pay employer NIC on commission — when it's earned or when it's paid?

Employer NIC is due when the commission is paid through payroll, not when the deal is closed or the commission is earned. This follows PAYE rules: NIC liability arises in the pay period when earnings are processed. If you accrue commission at month-end but pay it in the following month's payroll run, the employer NIC liability crystallises in the payment month and must be reported via your Full Payment Submission (FPS) at that time.

Where finance leaders are getting this wrong in FY26/27 plans

Three patterns we keep seeing in models we review:

1. Commission is loaded at base-salary rates, or not loaded at all. Some FP&A models apply a 13.8% loading to base and forget to extend it to variable, or apply a generic "30% on-cost" to base only. Variable pay then sits in the model at face value, which under-costs the commission line by 15% across the board.

2. Accelerators are modelled at target, not at upside. If your plan has a 1.5x accelerator above 100% attainment, you should be running your loaded-cost model at the realistic high-attainment scenario, not at on-target. The accelerator pound also costs 15% in employer NIC. A handful of reps hitting 130% in Q4 can blow a hole in the commission accrual and the NIC accrual that has to fund it.

3. Sign-on bonuses and SPIFs are forgotten in the NIC ledger. Cash sign-ons, retention bonuses, and SPIFs are all earnings for Class 1 purposes and all carry employer NIC. If you've negotiated a £10k cash sign-on for a senior AE, that's £1,500 of employer NIC on top — usually paid through payroll in month one and absent from the recruiting business case.

When the commission pound becomes a NIC pound

A detail that catches people out: employer NIC is due when the commission is paid through payroll, not when the deal is booked. Class 1 NIC follows the same earnings period as PAYE on the relevant payment (HMRC NIM02075).

That matters for two things:

• Accruals. Your commission accrual at month-end should carry a paired employer NIC accrual. If you accrue £180k of commission for the quarter, you also accrue roughly £27k of employer NIC against that pool, even though the cash doesn't leave until payroll runs.
• Clawbacks. When commission is clawed back from a rep through payroll (negative adjustment in the relevant pay period), the corresponding employer NIC is also reversed via the FPS. This is one of the cleaner reasons to run clawbacks through payroll rather than as off-system invoice deductions — the NIC reverses automatically rather than getting stuck on the wrong side of your P&L.

If you're exporting commission to payroll via Xero or similar, make sure the export carries the commission as additional gross earnings against the rep's standard pay element so the NIC calculates correctly inside payroll. Treating commission as a separate "bonus" element is fine — what you want to avoid is anything that flags as not subject to Class 1 NIC, which would be wrong for ordinary sales commission.

A FY26/27 budget checklist

If you're locking down a comp plan or hiring case in the next quarter, three things to do:

1. Rebuild the cost-per-rep model on loaded cost, not OTE. For each rep grade, calculate (Base + OTV) × 1.15 minus the small £5,000 × 15% = £750 secondary-threshold credit per head. That's your true at-target annual cost before pension and any apprenticeship levy.
2. Build a NIC line into your commission accrual. Most teams have a clean commission accrual; far fewer pair it with the employer NIC accrual. The two should move together at month-end close.
3. Stress-test at 110% and 120% blended attainment. Run the loaded-cost model at the upside case, not just plan. If your accelerator structure breaks the budget at 115% attainment, that's a plan design problem, not a finance problem — and now is the time to fix the curve before reps are working to it.

The 15% / £5,000 regime is not new any more. It is the operating environment. The teams that have absorbed it have stopped treating OTE as a cost number, started accruing employer NIC against commission monthly, and rebuilt their hiring business cases on loaded cost. The teams that haven't are going to find out in their FY26/27 actuals — and find out the expensive way.