NICs on holiday pay that you pay in advance

There are special National Insurance contributions (NICs) procedures to follow if your employee receives their holiday pay in advance. You can calculate the NICs due on the holiday pay using either of the following two methods.

Method A - split the payment

Split the payment across the weeks that it covers and calculate the NICs due in each week. For example, if you pay an employee two weeks' pay before they go on holiday for two weeks, then calculate and deduct NICs on one week's pay in each of the weeks they are away.

Method B - calculate NICs on the whole sum

If you are using NI Tables to calculate NICs, the following three steps apply:

1. divide the payment by the number of weeks it covers - three, for example
2. calculate the NICs due on one of these fractions - using the weekly table for the week in which the payment is made
3. multiply this NICs figure by the number of weeks - three, for example - to get the total NICs due on the payment

There are other ways of using Method B. For examples see page 29 of HM Revenue & Customs' (HMRC's) publication CWG2, "Employer Further Guide to PAYE and NICs".

Note that Method B cannot be used for employees who are paid monthly, or for holiday pay that is paid through the types of special scheme outlined in the next section.

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