How to Reduce Employer National Insurance Costs in 2026/27

Employer National Insurance can be a significant cost for businesses with employees. For the 2026/27 tax year, employers generally pay 15% Class 1 National Insurance on earnings above the £5,000 annual Secondary Threshold.

The good news is that there are legitimate ways to reduce your employer National Insurance bill. From claiming the Employment Allowance to taking advantage of specific National Insurance thresholds for younger employees, apprentices and veterans, the right approach could make a meaningful difference to your payroll costs.

Here are some options employers should consider.

1. Claim the Employment Allowance

The Employment Allowance is one of the most valuable ways eligible employers can reduce their National Insurance bill.

For 2026/27, eligible employers can reduce their employer Class 1 National Insurance liability by up to £10,500. The allowance is not automatic, so eligible businesses need to claim it through their payroll software.

The allowance can be particularly useful for small and growing businesses with several employees.

However, not every company qualifies. For example, where a company has only one director, that director cannot be the only employee liable for secondary Class 1 National Insurance. Businesses should therefore check the eligibility rules before making a claim.

If you have not checked your Employment Allowance eligibility recently, it is worth reviewing your position.

2. Consider your workforce structure

The way you structure your workforce can affect the amount of employer National Insurance you pay.

Employer Class 1 NIC is calculated separately for each employee once their earnings exceed the relevant Secondary Threshold. For 2026/27, the standard Secondary Threshold is £96 per week, £417 per month or £5,000 per year.

This means that, where it makes genuine commercial sense, employing several part-time workers rather than one full-time employee may reduce the total employer NIC bill.

Example

Suppose a business employs one employee earning £4,000 per month.

The employer NIC liability would be:

15% × (£4,000 − £417) = £537.45 per month

Now imagine the business employs two part-time employees, each earning £2,000 per month.

The employer NIC for each employee would be:

15% × (£2,000 − £417) = £237.45

For two employees, the total would therefore be £474.90 per month.

That is a monthly saving of £62.55, or £750.60 over a year, assuming the same pay throughout the year.

However, businesses should not restructure jobs purely to save National Insurance. Staffing requirements, employment rights, recruitment costs and operational needs should all be considered.

3. Employ workers under 21

Employers can benefit from a higher National Insurance threshold when employing eligible workers under the age of 21.

For 2026/27, the Upper Secondary Threshold for employees under 21 is:

• £967 per week
• £4,189 per month
• £50,270 per year

Employer Class 1 NIC is charged at 0% on earnings up to this threshold, with the standard 15% rate applying to earnings above it.

For an eligible employee earning above the standard threshold but below the under-21 threshold, this can produce substantial savings.

Businesses should ensure the employee’s age and National Insurance category are correctly recorded in payroll.

4. Take on eligible apprentices

Employing apprentices can provide businesses with both workforce development opportunities and potential National Insurance savings.

For eligible apprentices under 25, the Apprentice Upper Secondary Threshold (AUST) is £50,270 a year for 2026/27, or £4,189 per month and £967 per week. Employer Class 1 NIC is generally charged at 0% up to this threshold for qualifying apprentices.

This means businesses recruiting eligible apprentices may pay considerably less employer National Insurance than they would for an employee whose earnings are subject to the standard 15% rate.

The apprentice must meet the statutory conditions for the special National Insurance category to apply, so employers should check eligibility rather than assuming every apprentice automatically qualifies.

5. Consider employing eligible Armed Forces veterans

Businesses recruiting eligible Armed Forces veterans may also benefit from a higher National Insurance threshold.

For 2026/27, the Veterans Upper Secondary Threshold is:

• £967 per week
• £4,189 per month
• £50,270 per year

For qualifying veterans, employer Class 1 NIC is charged at 0% up to this threshold.

The relief applies during the qualifying period following the veteran leaving the Armed Forces. Employers should make sure the employee meets the relevant conditions and that the correct National Insurance category is used.

6. Explore Freeport and Investment Zone relief

Businesses operating in qualifying Freeport or Investment Zone special tax sites may be able to benefit from employer National Insurance relief when recruiting eligible new employees.

For 2026/27, the Freeport and Investment Zone Upper Secondary Threshold is £25,000 per year, or £2,083 per month and £481 per week. Employer NIC can be charged at 0% on qualifying earnings up to this threshold.

However, simply having a business in a general Freeport or Investment Zone does not automatically mean the relief applies.

There are specific requirements. For example, the employer must have business premises within the relevant special tax site, and qualifying employees generally need to spend at least 60% of their working time there. The relief can apply for the first 36 months of qualifying employment.

Businesses considering relocating should therefore take professional advice before making a decision based solely on National Insurance savings.

7. Review your payroll regularly

National Insurance savings are not always about making major changes to your business. Sometimes, the biggest opportunities come from making sure your payroll is set up correctly.

Regularly review:

• Employee National Insurance category letters
• Employment Allowance eligibility
• Employee ages
• Apprentice status
• Veteran status
• Freeport or Investment Zone eligibility
• Employee earnings against relevant thresholds
• Payroll records and RTI submissions

A payroll error can result in a business paying too much National Insurance or claiming relief incorrectly.

8. Remember that employer National Insurance is tax deductible

Employer Class 1 National Insurance is generally an allowable business expense when calculating taxable profits.

This does not remove the cost, but it means the employer National Insurance contribution can normally be taken into account when calculating the company’s taxable profits.

Businesses should therefore consider the after-tax cost, rather than looking only at the gross National Insurance payment.

How much could your business save?

The potential saving will depend on factors such as:

• Number of employees
• Employee salaries
• Employee ages
• Apprentice and veteran status
• Employment Allowance eligibility
• Business location
• Freeport or Investment Zone eligibility
• Payroll structure

For some businesses, the Employment Allowance alone could reduce the annual employer NIC bill by up to £10,500. Other businesses may benefit from combining the allowance with appropriate recruitment and payroll planning.

Plan your employer National Insurance costs

Employer National Insurance is an unavoidable cost for many businesses, but that does not mean you should pay more than necessary.

Reviewing your Employment Allowance eligibility, understanding the different National Insurance thresholds and checking whether your employees qualify for special categories can help reduce your payroll costs while keeping your business compliant.

The important point is to make decisions based on genuine business needs rather than changing employment arrangements solely for tax purposes.

If you are unsure whether your business is claiming all the National Insurance reliefs available to it, a payroll or tax adviser can review your position and identify potential savings.