April national insurance changes: how can employers ease the pain?

The changes to employer national insurance contributions (NIC) that took effect in April place a fresh burden on UK companies, and many businesses, particularly those that employ large numbers of lower paid workers, are finding the new regime onerous and extremely unwelcome. 

However, the Treasury did make an effort to mitigate the impact of the new rules, especially for smaller businesses, by means of an increase to the employment allowance. Furthermore, companies can make use of existing methods of reducing payroll costs, such as offering salary sacrifice schemes. 

They can also look at taking on more contracted workers to keep their fixed costs down. Whether or not this is a cost-effective route partly depends on the cost per employee, including the company’s pension contributions. 

The Employee pay and auto-enrolment calculator at the end of this article is a quick and easy way to work out the cost of each employee. However, before going to the calculator let’s remind ourselves of the new rules from April.

What changed in April?

NIC liabilities for employers changed in April and it has been estimated that 940,000 employers will pay more NICs in 2025-26.

 There are three aspects for employers to be aware of:

• The increase in employers’ NICs (secondary Class 1 NICs) from 13.8% to 15%.

• A cut in the secondary threshold from £9,800 to £5,000.

• An increase in the employment allowance to £10,500.

Secondary threshold

The secondary threshold – the earnings threshold after which an employer is liable to pay secondary Class 1NICs – is now £5,000. It will stay at this level until April 2028 when it will be increased in line with the Consumer Price Index.

Employment allowance

The employment allowance has increased to £10,500 from £5,000 and the £100,000 threshold has gone. Employers pay less NI each time they run payroll until the £10,500 allowance is exhausted or the tax year ends (whichever comes first). 

Employment allowance can be claimed even if NI liability is less than £10,500 a year.

Single-person companies do not qualify for employment allowance.

Auto-enrolment: what are the rules?

Employers are obliged to set up workplace pensions, which is known as auto-enrolment as new employees become part of the scheme automatically on joining the company. 

An employee’s earnings must be abovethe lower earnings limit (LEL) to trigger pension auto-enrolment. This was left unchanged for 2025-26 at £10,000, thus drawing more people into auto-enrolment as earnings rise along with inflation. Considerations about reducing the limit were rejected out of concern that low-paid employees might not be able to keepenough of their income to pay for their day-to-day needs.  

Once employees are enrolled in the pension scheme their contributions are based on their earnings between £6,240 and £50,270. The company pays in 3% of pay and employees 5% and can choose to pay a higher percentage. Employees can opt out of the pension scheme but will only get their payments returned to them if they do so within one calendar month of signing up. 

Upper earnings limit

The employer’s upper earnings limit will remain at £50,270 for 2025-26, which is also the threshold at which higher rate tax begins to be paid. The cap means employers do not have to make pension contributions on earnings above this sum.  

Staff vs subcontractors

Many companies will pay more NICs after the changes introduced in the autumn statement took effect in April.

For example, employees on sub-median earnings of £30,000 now cost their employer £3,700 a year in NICs payments. Before April that sum would have been £2,884.20, so the employer is obliged to pay another £816 a year.

Depending on the size of the payroll contracting out some of these jobs is going to be a serious consideration for some companies.  

It is possible to mitigate the increase by means of salary sacrifice or benefit in kind schemes that offer non-cash perks such as childcare vouchers, extra pension contributions or cycle to work schemes. 

Rather than take on more staff,companies may decide to use temporary or casual workers. These can be workers who provide their services through their own company (an intermediary). The HMRC rules governing this are known as IR35. Alternatively a company may just book in workers as needed who invoice when the job is done. 

As a rough estimate, on a salary of £50,000 an employee will take home £3,290 a month. To match this income, a company would have to pay a self-employed person who contracts his services about £250 a day. Similarly, it will need to pay a contractor under IR35 £300 a day.

Which of these is the most cost-effective option will be for each company to decide, depending on its circumstances. 

Employee pay calculator

This tool is designed to help managers decide whether to increase their head count or bring in contractors. Just key in the required data to find out what your costs are per employee.

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For specific advice about how to mitigate the effects of the increase to employers NICs or any other business or tax issue please contact Finsbury Robinson.

We are a full-service tax, accountancy and business advisory firm, and our friendly and highly experienced team is available on 020 8858 4303 or via email at info@finsburyrobinson.co.uk to answer all your questions