National Insurance funds the State Pension and several contributory benefits. However, not every worker pays National Insurance from their first pound of earnings. Instead, the system uses a series of thresholds, one of these being the Lower Earnings Limit (LEL).
What is the Lower Earnings Limit?
The Lower Earnings Limit sets the minimum level of weekly earnings that count towards a National Insurance record. It does not trigger a deduction from pay. Instead, it protects access to certain state benefits.
If an employee earns at or above the LEL, the system credits them with National Insurance Contributions. As a result, they build up qualifying years for the State Pension. However, they do not pay employee National Insurance until they reach the Primary Threshold.
In practical terms:
- Earnings below the LEL do not create a qualifying year
- Earnings between the LEL and the Primary Threshold create a qualifying year
- Earnings above the Primary Threshold create both a qualifying year and an National Insurance deduction
Therefore, the LEL acts as a safety net for lower-paid workers.
Why the Lower Earnings Limit Matters
The State Pension relies on qualifying years. Most individuals need 35 qualifying years to receive the full new State Pension. Even small gaps can reduce future pension income.
The Lower Earnings Limit allows part-time workers and lower earners to protect their record. They can build pension entitlement without facing immediate deductions from wages.
This structure supports:
- Part-time employees
- Workers on variable hours
- Employees returning from career breaks
- Individuals on modest weekly pay
Without the LEL, many low earners would miss valuable qualifying years. Over time, those missing years can significantly reduce retirement income.
Lower Earnings Limit for 2025/26
For the tax year ending 5 April 2026, the Lower Earnings Limit stands at:
- £125 per week
- £542 per month
- £6,500 per year
Anyone earning at least £125 per week secures a qualifying year for State Pension purposes. However, employees only begin paying Class 1 National Insurance once earnings reach the Primary Threshold of £242 per week.
For instance, an employee earnings £200 per week:
- Pays no employee National Insurance
- Builds a qualifying year
- Strengthens their future pension position
This protection makes the LEL extremely valuable for lower earners.
Employer Responsibilities and Payroll Reporting
Although employees do not pay National Insurance between the Lower Earnings Limit and the Primary Threshold, employers still carry responsibilities.
Employers must:
- Report earnings above the LEL through PAYE
- Use compliant and up-to-date payroll software
- Apply accurate National Insurance category codes
If an employer reports earnings incorrectly, the employee may lose a qualifying year. This mistake can reduce long-term pension entitlement.
How the Limit Fits Within Class 1 Thresholds
The Lower Earnings Limit forms only one part of the wider National Insurance framework.
For 2025/26, the main weekly thresholds include:
| Threshold | Amount |
|---|---|
| Lower Earnings Limit | £125 |
| Primary Threshold | £242 |
| Secondary Threshold | £96 |
| Upper Earnings Limit | £967 |
Employees pay:
- 8% on earnings between £12,570 and £50,270 per year
- 2% on earnings above £50,270 per year
Employers pay 15% on earnings above £5,000 per year. Together, these thresholds determine both employee deductions and employer costs. Each threshold serves a different purpose within the system.
Employers’ National Insurance Changes from April 2025
April 2025 introduced significant changes for employers.
Two major adjustments took effect:
- The Secondary Threshold fell from £9,100 to £5,000 per year
- The Employers’ National Insurance Contributions rate increased from 13.8% to 15%
As a result, employers now pay National Insurance sooner and at a higher rate.
For example: If an employee earns £20,000 per year, the employer now pays 15% on earnings above £5,000. Previously, the employer only paid on earnings above £9,100.
Employment Allowance and Cost Relief
Despite higher Employers’ National Insurance Contribution rates, the Government increased the Employment Allowance. From April 2025, the Employment Allowance rose to £10,500 per year.
This allowance enables eligible employers to reduce their Secondary Class 1 National Insurance bill. Smaller employers may offset most, or even all, of their Employers’ National Insurance liability. However, some companies remain ineligible.
For example: Personal companies with a sole director employee cannot claim the allowance.
Confirmed Lower Earnings Limit for 2026/27
The Government has confirmed an increase in the Lower Earnings Limit for 2026/27.
From April 2026, the Lower Earnings Limit will rise to:
- £129 per week
- £559 per month
- £6,708 per year
This increase reflects inflation adjustments. It ensures lower earners continue building pension entitlement in real terms. Although the rise appears modest, it protects thousands of workers across the UK.
Statutory Sick Pay Reform from April 2026
The Government plans to remove the earnings requirement for Statutory Sick Pay (SSP) in April 2026. Currently, employees must earn at least the Lower Earnings Limit to qualify for SSP. From April 2026, all employees will qualify for SSP regardless of earnings.
This reform will:
- Extend sick pay protection to lower-paid workers
- Increase payroll administration
- Raise employment costs for many businesses
Employers will need stronger systems to track short-term absences. Even casual or low-paid staff will fall within SSP rules.
National Insurance for the Self-Employed
Self-employed individuals operate under different rules. They do not rely on the Lower Earnings Limit in the same way as employees. Instead, they work with profit-based thresholds.
For 2025/26
| Threshold | Amount |
|---|---|
| Lower Profits Limit | £12,570 per year |
| Upper Profits Limit | £50,270 per year |
Self-employed individuals pay:
- Class 4 National Insurance Contributions at 6% between £12,570 and £50,270
- Class 4 National Insurance Contributions at 2% above £50,270
Class 2 National Insurance now remains voluntary at £3.50 per week. However, voluntary contributions can protect State Pension entitlement where profits fall below the small profits threshold.
Voluntary Contributions and Pension Protection
Individuals can pay voluntary contributions to fill gaps in their National Insurance record. Class 3 voluntary contributions cost £17.75 per week in 2025/26.
From April 2025, individuals can usually fill gaps only from the previous six tax years. This limit increases the importance of regular record checks.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.