Employer’s Class 1 National Insurance is a significant cost for employers, being charged at 15% on earnings over the relevant threshold. However, there are some steps that employers can take to reduce their bill.
Claim the Employment Allowance
The Employment Allowance is a valuable allowance which reduces an employer’s secondary Class 1 bill by up to £10,500 a year. The allowance is capped at the employer’s secondary Class 1 liability for the year where this is less than £10,500.
The allowance is not given automatically and for eligible employers to be able to benefit from it, they need to claim it. This can be done through their payroll software.
The allowance is not available to companies where the sole employee paid above the secondary threshold is also a director, rendering many personal companies ineligible. However, consideration could be given to perhaps changing the director to a spouse or civil partner or taking on a second employee and paying them above the secondary threshold (set at £96 per week).
Employ part-time workers
Employers pay secondary Class 1 National Insurance on employees’ earnings above the secondary threshold. By employing more part-time workers and less full-time workers, the employer is able to benefit from additional secondary thresholds, reducing their overall bill.
Example
An employer employs a full-time worker who is paid £4,000 a month. None of the higher secondary thresholds apply. The employer pays secondary Class 1 National Insurance of £537.45 a month (15% (£4,000 – £417)).
If instead the employer employed two part-time workers, paying them each £2,000 a month, the employer would pay secondary Class 1 National insurance of £237.45 a month for each employee (15% (£2,000 – £417)) – a total monthly bill of £474.90. By employing two part-time workers rather than one full-time worker, the employer saves £62.55 a month (15% of the monthly secondary threshold of £417). This is an annual saving of £750.60.
Employ workers under the age of 21
A higher secondary threshold – the upper secondary threshold for under 21s – applies where the worker is under 21. For 2026/27, it is set at £967 per week, £4,189 per month and £50,270 per year. Employer contributions (at 15%) are only payable on earnings in excess of the threshold. Employing a worker under 21 rather than one over 21 can reduce the employer’s secondary Class 1 bill by up to £6,790.50 a year.
Employ apprentices
A higher secondary threshold also applies in respect of the earnings of apprentices under the age of 25. The apprentice upper secondary threshold (AUST) is set at £967 per week, £4,189 per month and £50,270 a year for 2026/27. Taking on apprentices can be beneficial for the business and reduce the employer’s National Insurance bill. However, the apprentice must meet the statutory definition in the National Insurance legislation for the AUST to be available.
Employ armed service veterans
Taking on an armed forces veteran can also pay. A higher secondary threshold, the veterans upper secondary threshold, applies to the earnings of an armed forces veteran in the first 12 months of employment since leaving the armed forces. It is available for 2026/27 and is set at £967 per week, £4,189 per month and £50,270 a year.
Relocate to a Freeport or an Investment Zone
Employers whose businesses are located in a Freeport or an Investment Zone benefit from a range of tax incentives. These include a higher secondary threshold for new employees in their first three years of employment in a Special Tax Site. The threshold is set at £481 per week, £2,083 per month and £25,000 a year.
It should also be noted that employers can deduct secondary Class 1 contributions in calculating their taxable profits.
