Employer Payroll Taxes Guide for Employers: Rates, Rules & Reporting

What are employer payroll taxes?

Employer payroll taxes are mandatory payments that employers are required to make to government bodies based on their employees’ gross taxable wages. These taxes fund essential social safety net programmes, such as Social Security, Medicare, unemployment programs, and public healthcare. They are separate from the employee contributions deducted from employees’ paychecks, though in many cases, both the employer and the employee contribute.

While employees pay a portion of payroll taxes through payroll tax withholding, employers also have their own share of responsibilities; commonly referred to as the employer share.

Key employer payroll tax components

Here’s a summary of the most common employer payroll taxes across various jurisdictions:

These taxes are not optional. Employers generally must calculate payroll taxes, withhold where required, and report payroll taxes to the relevant authorities. Non-compliance can result in penalties, interest, and in severe cases, a trust fund recovery penalty issued by the Internal Revenue Service (IRS) or HMRC.

Employer payroll taxes in the UK

Payroll taxes in the UK come with their own set of rules, thresholds, and relief schemes. With recent updates taking effect in 2025, it's more important than ever for employers to understand their tax liability and stay compliant.

National Insurance Contributions (NICs)

From April 2025, the employer’s NIC rate will increase from 13.8% to 15%. This applies to most employees’ wages that exceed the secondary threshold, which is also changing significantly. The threshold is dropping from £9,100 to £5,000, meaning employers will owe employment taxes on a larger portion of their employee's gross taxable wages.

Here’s a quick comparison:

This change increases the employer payroll burden, especially for businesses with lower-paid staff, such as agricultural employees or part-time workers. Most employers will need to calculate employer payroll taxes more carefully to accommodate the extra cost.

PAYE and other obligations

Under the Pay As You Earn (PAYE) system, employers must deduct income tax and National Insurance from employees' paychecks and send it directly to HM Revenue and Customs (HMRC).

Employer responsibilities under PAYE include:

• Calculating the correct amount of federal income tax (in the UK context, just called income tax) and NICs to deduct

• Making timely tax payments to HMRC every pay period

• Issuing P60 and P45 forms as needed

• Submitting Real Time Information (RTI) to report earnings, payroll tax withholding, and other data

Failure to comply with PAYE rules can lead to financial penalties and affect your eligibility for tax benefits.

Employment Allowance

A major boost for small and medium-sized businesses comes from the Employment Allowance, which is designed to reduce employer payroll taxes.

As of April 2025, the allowance is increasing from £5,000 to £10,500, and—critically—the £100,000 eligibility cap is being removed. This means more businesses will be able to offset their National Insurance contributions.

This adjustment makes a substantial difference in reducing tax liability, especially for employers generally running on tighter margins. However, businesses must still submit an application annually via HMRC systems to claim the tax credit.

With these changes, payroll tax includes more cost at the top but also more support at the bottom, so most employers will need to balance increased tax rate obligations with available reliefs.

Employer payroll taxes in the US

Across the United States, employer payroll taxes are layered; federal, state, and sometimes even local. Each level comes with its own rates, thresholds, and filing requirements, making compliance a bit of a juggling act for most employers.

Federal payroll taxes

At the federal level, employment taxes primarily support Social Security programs, Medicare, and unemployment benefits. Here's what employers generally need to pay:

⚠️ The Federal Unemployment Tax Act (FUTA) rate is 6.0%, but most businesses receive a tax credit of up to 5.4% if they pay state unemployment taxes on time, lowering the effective rate to 0.6%. If operating in a credit reduction state, that discount may be reduced.

Employers are responsible for federal tax withholding, including federal income tax, which is deducted from wages and submitted along with employer-paid portions of FICA taxes (Social Security and Medicare taxes).

State-specific taxes

State payroll taxes vary significantly. Most states require employers to pay State Unemployment Insurance (SUI), also referred to as state unemployment tax.

Key points:

• SUI tax rates differ by state and employer history (i.e., “experience rating”).

• Some states, like California and New York, also impose additional payroll taxes for disability or healthcare programmes.

• A few local governments add separate taxes based on gross payroll, industry, or headcount.

Employers must check with their state revenue department for specific rates and reporting rules.

Calculating employer payroll taxes

Getting the numbers right is key. Here’s how to stay on top of your employer payroll obligations with precision.

Gross wage determination

Before you can apply any employment taxes, you need to work out your employee’s gross taxable wages. This is the total pay before taxes and pre tax deductions such as pension contributions, health insurance, or salary sacrifice schemes.

Gross wages include:

• Hourly wages or salary

• Bonuses and commissions

• Overtime pay

• Tips (in applicable industries)

• Fringe benefits (if taxable)

• Paid time off (holiday, sick leave, etc.)

For hourly staff:

Gross pay = Hours worked × Hourly rate

For salaried staff:

Gross pay = Annual salary ÷ Number of pay periods

Use this base to begin applying the right tax rate for each applicable payroll tax.

Applying tax rates

Once gross wages are confirmed, it’s time to apply payroll taxes paid by the employer. Different portions of wages may be subject to different tax treatments, especially in the US.

Here’s a simplified breakdown:

Always check if the employee qualifies for exemptions or if you're in a credit reduction state, which could affect your FUTA taxes.

Utilising payroll software

Manual calculations might cut it for one or two staff, but most employers rely on payroll software for accuracy and time savings. The right system can:

• Automatically calculate payroll taxes

• Adjust for pre tax deductions

• Account for different pay periods

• Track federal tax withholding, state payroll taxes, and other obligations

• Generate reports and transmittal forms like IRS Form 941 or UK RTI filings

• Alert you to upcoming tax payments and filing deadlines

Many tools integrate directly with accounting platforms and allow for quick audits of your tax liability, a lifesaver when tax season rolls around or when working with a tax professional.

Simplify payroll tax management with Shiftbase

Handling employer payroll taxes becomes significantly easier when your workforce data is accurate and accessible. That’s where Shiftbase comes in. Our all-in-one solution for employee scheduling, time tracking, and absence managementensures that you always have up-to-date information on hours worked, overtime, and leave balances.

With this data centralised, our payroll integration streamlines the entire salary process, reducing manual work and ensuring compliance with payroll tax rules. Whether you're calculating gross wages or preparing for tax reporting, Shiftbase helps eliminate errors and keeps your records clean and export-ready for Excel or other platforms.

Best of all, our platform supports seamless integration with third-party applications, making your payroll processes more connected and efficient.

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