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Tax & Accounting

Employ a worker on a small salary to access the Employment

By Ali Jaw ·

Employer’s National Insurance rose considerably from 6 April 2025. Not only did the rate increase from 13.8% to 15%, but the secondary threshold also fell from £9,100 to £5,000. This is the amount that an employer can pay before National Insurance becomes due. For many Worcester businesses, this change has prompted a closer look at payroll structures — and some have started considering whether employing workers on smaller salaries might help manage the increased burden. But is this strategy advisable, and what are the real implications?

Understanding the changes

The April 2025 changes represent a significant shift in the employment landscape. Previously, employers paid National Insurance at 13.8% on earnings above £9,100 per employee per year. Now, that threshold has dropped to £5,000, with the rate climbing to 15%. In practical terms, this means the cost of employing someone on even a modest salary has increased noticeably.

For a worker earning £20,000 annually, the employer’s National Insurance bill has jumped from roughly £1,398 to £2,250 per year. It’s understandable, then, that business owners are exploring ways to manage this additional expense. One approach that’s gained traction in conversations with clients is the idea of employing multiple workers on lower salaries rather than fewer people on higher wages.

The appeal of lower salary structures

On the surface, the logic seems sound. If you employ someone on £5,000 per year, no employer’s National Insurance is payable. Employ three people at that threshold, and you’re avoiding significant National Insurance costs compared to employing one person at £15,000.

However, HMRC is well aware of this tactic. The tax authorities have a long history of scrutinising employment arrangements that appear designed primarily to minimise tax and National Insurance contributions. What matters to HMRC isn’t just the structure on paper — it’s the substance of the arrangement.

HMRC’s approach to artificial arrangements

The key principle here is that employment must be genuine. HMRC will look at whether the roles are real, whether the work is actually being performed, and whether the salary structure reflects genuine business needs or is artificially constructed to reduce tax liabilities.

If you employ someone on £5,000 per year but they’re actually performing work equivalent to a £15,000 role, HMRC may challenge the arrangement. The organisation has powers to assess what they consider to be the true amount of earnings, and they’re increasingly using data analytics to identify suspicious payroll patterns.

Additionally, employees themselves have rights and protections. The National Minimum Wage applies regardless of how you structure employment. If someone is working 30 hours per week on £5,000 annually, they may not meet minimum wage requirements — creating a separate compliance problem.

A practical approach for employers

Rather than pursuing artificial salary structures, a more sustainable strategy is to review your workforce planning honestly. Are there genuine opportunities to restructure roles? Could you employ additional part-time staff to meet business needs? These approaches work with the tax system rather than against it.

There are also legitimate ways to manage the National Insurance increase. Consider:

  • Pension contributions: Contributions to registered pension schemes reduce taxable profits and can be an effective way to reward employees whilst managing tax costs.
  • Employee benefits: Some benefits are tax-efficient and don’t trigger National Insurance.
  • Business allowances: Ensure you’re claiming all available reliefs and allowances on your corporation tax return.

The honest truth is that the April 2025 changes have made employment more expensive, and there’s no magic formula to avoid that entirely. However, compliance and genuine business structure will always be more cost-effective than arrangements that attract HMRC scrutiny.

What this means for your business

If you’re considering restructuring your payroll, take time to assess whether the changes genuinely reflect your business needs. Document your reasoning. Keep records that demonstrate roles are real and salaries are appropriate. This protects you should HMRC ever ask questions.

The increased National Insurance burden is real, but the solution isn’t to engineer artificial arrangements. Instead, focus on optimising your payroll structure within the rules, maximising legitimate tax-efficient benefits, and ensuring your workforce strategy supports genuine business objectives.

For tailored advice, contact Severn Accounting — we’re here to help.