Employer’s Class 1 National Insurance (NICs) can represent a significant employment cost. For the 2026/27 tax year, the standard employer Class 1 NIC rate is 15% on earnings above the Secondary Threshold of £96 per week, £417 per month or £5,000 per year.
However, employers may be able to reduce their National Insurance bill by making use of available allowances, employment structures and specific National Insurance reliefs.
Here are some practical ways to reduce employer Class 1 NIC costs while remaining compliant with HMRC rules.
1. Claim the Employment Allowance
The Employment Allowance is one of the most valuable ways for eligible employers to reduce their employer National Insurance bill.
For 2026/27, eligible employers can reduce their annual secondary Class 1 NIC liability by up to £10,500. The allowance cannot create a repayment of NICs, so if the employer’s liability is below £10,500, the allowance is limited to that liability.
The allowance is not automatic. An eligible employer needs to claim it through its payroll software or PAYE process.
Who may not qualify?
A limited company with only one director may not qualify where that director is the only employee liable for secondary Class 1 NICs. However, if more than one employee or director earns above the Secondary Threshold, the company may become eligible, subject to the other conditions.
Employers should not create artificial employment arrangements simply to obtain the allowance. Any change in staffing should have a genuine commercial basis and comply with employment and tax legislation.
2. Consider the balance between full-time and part-time employees
Employer Class 1 NIC is calculated separately for each employee. This means that employing several part-time workers rather than one higher-paid employee can sometimes reduce the overall employer NIC bill because each employee has their own Secondary Threshold. For 2026/27, the monthly Secondary Threshold is £417.
Example
Suppose an employer pays one full-time employee £4,000 per month.
The employer’s monthly Class 1 NIC would be:
15% × (£4,000 − £417) = £537.45
Now suppose the employer instead employs two part-time employees, each earning £2,000 per month.
For each employee:
15% × (£2,000 − £417) = £237.45
For two employees, the total is:
£237.45 × 2 = £474.90 per month
The employer therefore saves:
£537.45 − £474.90 = £62.55 per month
That is an annual saving of £750.60.
This approach will not be appropriate for every business, as staffing decisions should be based primarily on genuine business requirements rather than NIC savings alone.
3. Employ workers under the age of 21
Employers can benefit from a 0% secondary Class 1 NIC rate on qualifying earnings of employees under 21 up to the Upper Secondary Threshold.
For 2026/27, the Upper Secondary Threshold for employees under 21 is:
- £967 per week
- £4,189 per month
- £50,270 per year
Employer NIC at 15% applies only to qualifying earnings above the threshold.
For example, where an eligible employee under 21 earns £50,270 a year, the employer could save up to:
15% × (£50,270 − £5,000) = £6,790.50
compared with the standard employer NIC treatment.
The relief applies because of the employee’s age and qualifying earnings, rather than being a general exemption from employer NIC. Employers must use the appropriate National Insurance category letter and apply the rules correctly.
4. Employ apprentices under 25
Employers may also benefit from a 0% employer Class 1 NIC rate for qualifying apprentices who are under 25.
For 2026/27, the Apprentice Upper Secondary Threshold is:
- £967 per week
- £4,189 per month
- £50,270 per year
Employer NIC at 15% generally applies to qualifying earnings above the Apprentice Upper Secondary Threshold.
Taking on apprentices can therefore provide both workforce development benefits and potential National Insurance savings.
However, the employee must meet the statutory conditions for an apprentice and the employer must use the correct NIC category. Simply describing an employee as an apprentice does not automatically make the special NIC treatment available.
5. Employ qualifying armed forces veterans
Employers can also benefit from a special National Insurance relief when employing a qualifying armed forces veteran.
For 2026/27, the Veterans Upper Secondary Threshold is:
- £967 per week
- £4,189 per month
- £50,270 per year
A 0% employer Class 1 NIC rate can apply to qualifying earnings between the Secondary Threshold and the Veterans Upper Secondary Threshold. The relief applies during the qualifying period following the veteran’s departure from the armed forces.
The relief can provide a substantial saving for employers while also supporting veterans moving into civilian employment.
6. Consider Freeport and Investment Zone opportunities
Businesses operating in qualifying Freeport or Investment Zone special tax sites may benefit from a higher secondary threshold for eligible employees.
For 2026/27, the relevant upper secondary threshold is:
- £481 per week
- £2,083 per month
- £25,000 per year
A 0% employer Class 1 NIC rate can apply to qualifying earnings up to this threshold for eligible employees working in the relevant special tax site.
However, simply relocating a business does not automatically qualify an employer for the relief. Specific conditions apply, including requirements relating to the location of the business premises, the employee and the date of employment.
Businesses considering relocation should therefore assess the wider commercial benefits and tax implications before making a decision.
7. Check that the correct National Insurance category is being used
Using the correct National Insurance category letter is essential.
Different categories can apply to employees such as:
- Employees under 21
- Apprentices under 25
- Qualifying veterans
- Employees working in Freeport tax sites
- Employees working in Investment Zone tax sites
The category determines whether a special 0% secondary NIC rate applies. HMRC provides specific category letters for these situations.
Employers should regularly review employee records, particularly when an employee reaches an age threshold or their employment circumstances change.
8. Remember that employer NIC is normally a deductible business expense
Employer Class 1 National Insurance is generally an employment cost that can be deducted when calculating taxable business profits, subject to the normal rules.
This does not reduce the NIC bill itself, but it can reduce the taxable profit on which Income Tax or Corporation Tax is calculated.
Therefore, employers should consider both the immediate National Insurance cost and the wider tax treatment when assessing employment costs.
Important: Don’t reduce NIC at the expense of compliance
National Insurance planning should be based on genuine business decisions and correctly applied legislation.
Employers should not:
- Create artificial employment arrangements solely to obtain NIC relief
- Misclassify employees to access a lower NIC rate
- Treat someone as an apprentice when they do not meet the statutory requirements
- Assume that moving premises automatically qualifies for Freeport or Investment Zone relief
- Claim Employment Allowance without checking eligibility
Incorrect payroll treatment can result in underpaid NICs, interest, penalties and the need to correct previous payroll submissions.
Frequently Asked Questions
1. What is the employer Class 1 NIC rate for 2026/27?
The standard employer Class 1 NIC rate is 15% on earnings above the Secondary Threshold. For 2026/27, the Secondary Threshold is £96 per week, £417 per month or £5,000 per year.
2. How much is the Employment Allowance in 2026/27?
The Employment Allowance is £10,500 for 2026/27. Eligible employers can use it to reduce their secondary Class 1 NIC liability.
3. Is Employment Allowance automatic?
No. Eligible employers need to claim the Employment Allowance through their payroll process.
4. Can a one-director company claim Employment Allowance?
A limited company with only one director generally cannot claim if that director is the only employee liable for secondary Class 1 NIC. The rules can change if another employee or director also earns above the Secondary Threshold.
5. How much can an employer save by employing someone under 21?
For 2026/27, the maximum potential saving against the standard threshold can be £6,790.50 per employee per year, based on 15% of the difference between the £50,270 Upper Secondary Threshold and the £5,000 standard Secondary Threshold.
6. Do apprentices pay employer National Insurance?
Employers can benefit from a 0% secondary Class 1 NIC rate on qualifying earnings of apprentices under 25 up to the Apprentice Upper Secondary Threshold. For 2026/27, this is £50,270 a year.
7. Can employing veterans reduce employer National Insurance?
Yes. A qualifying armed forces veteran can benefit from a 0% employer secondary NIC rate up to the Veterans Upper Secondary Threshold during the relevant qualifying period.
8. Does moving to a Freeport automatically reduce employer NIC?
No. The business and employees must meet specific conditions for the Freeport NIC relief to apply. The 2026/27 Freeport Upper Secondary Threshold is £25,000 a year.
Final Thoughts
Employer Class 1 National Insurance can be a significant cost, particularly after the increase in the employer rate to 15%. However, businesses should not assume that the full standard rate has to apply to every employee.
The Employment Allowance, appropriate use of part-time employment structures, and the special NIC rules for under-21 employees, apprentices, veterans, Freeport and Investment Zone employees can all provide opportunities to reduce employer NIC costs where the relevant conditions are met.
The key is to review your payroll structure regularly and make sure that every available relief is being claimed correctly.
For businesses with a sizeable workforce or complex payroll arrangements, professional tax and payroll advice can help identify legitimate opportunities to reduce costs while keeping the business fully compliant with HMRC requirements.