Going from subcontract labour to a real employee is the point at which a trade business becomes an employer, and 2026 is an expensive year to do it in. Employer National Insurance is 15% from a £5,000 threshold, statutory sick pay starts on day one from 6 April 2026, and the unfair dismissal qualifying period falls to six months in January 2027. None of that is a reason not to employ. It is a reason to price it properly.
Guide · Updated August 2026
| Item | 2026/27 | Changed |
|---|---|---|
| Secondary Class 1 rate | 15% | From 13.8% on 6 April 2025 |
| Secondary threshold | £5,000/yr (£96/wk, £417/mth) | Down from £9,100 on 6 April 2025 |
| Class 1A on benefits | 15% | — |
| Employment Allowance | £10,500 | Up from £5,000 on 6 April 2025 |
| Apprenticeship Levy | 0.5%, £15,000 annual allowance | — |
The rate went up and the threshold came down at the same time, which is what made 2025 such a step change for small employers. The £100,000 previous-year secondary NIC eligibility cap on the Employment Allowance was removed on 6 April 2025, so far more employers can now claim the £10,500.
Employee Class 1 for 2026/27, for completeness: 0% between the lower earnings limit of £6,708 a year and the primary threshold of £12,570; 8% from there to the upper earnings limit of £50,270; 2% above.
A company with a single director who is the only employee liable for secondary Class 1 NIC cannot claim. Only one company in a group, or in a connected group of charities, may claim. Off-payroll workers cannot be counted, and neither can domestic staff other than care and support workers.
The first of those is the one that bites: a one-person limited company paying only its director gets no Employment Allowance. Taking on a first employee often makes the allowance available for the first time — which changes the arithmetic of the hire considerably.
A limited company builder takes on a joiner at £32,000 a year. The company has one director, currently the only person on the payroll.
The headline point is that the Employment Allowance turns a £4,050 NIC bill into nothing, in a company that previously could not claim it at all. The first employee is therefore often proportionately cheaper than the second. What the allowance does not cover is holiday, sick pay, pension, tools, insurance and the time you spend supervising — which is the real cost of the hire.
The same worker engaged as a labour-only subcontractor at £32,000 would carry no employer NIC, no holiday and no sick pay — which is precisely why HMRC scrutinises the distinction. If the engagement is in substance employment, none of that saving is real. See the employment status guide.
| Band | Hourly rate |
|---|---|
| 21 and over — National Living Wage | £12.71 |
| 18 to 20 | £10.85 |
| Under 18 | £8.00 |
| Apprentice | £8.00 |
The apprentice rate applies if the apprentice is under 19, or is 19 or over and in the first year of the apprenticeship. After that first year, an apprentice aged 21 or over moves to the full National Living Wage — a step up that catches employers who set the rate at the start of a two-year apprenticeship and never revisit it.
Other 2026/27 statutory rates: SSP £123.25 a week; statutory maternity, paternity, adoption and shared parental pay £194.32 a week or 90% of average earnings, whichever is lower.
From 6 April 2026, under the Employment Rights Act 2025, statutory sick pay changed in two ways at once. The lower earnings limit was removed, so all eligible employees qualify regardless of earnings. And waiting days were removed, so SSP is payable from day one of absence rather than the fourth day.
SSP is now paid at 80% of normal weekly earnings, or £123.25 a week, whichever is lower. Absences starting before 6 April 2026 follow the old rules.
The government's own costing is around £400 million a year extra in sick pay nationally, with most of the increase attributable to removing waiting days rather than removing the earnings limit. For a trade business with site staff, that is exactly the wrong shape: construction absences are frequently one, two or three days — a bad back, a cut hand, a stomach bug — and those were the absences that previously cost nothing.
If you employ four or five site operatives, budget for short absences now being paid. It is not a large sum per instance and it is a predictable one per year.
The Act received Royal Assent on 18 December 2025 and commences in stages by regulations. What is already in force and matters to a trade employer:
Still to come, and worth planning for:
The January 2027 date is the one to build a habit for now. A six-month qualifying period with uncapped awards means the probation period stops being the safety net it has been, and documented performance conversations from week one become the protection instead. That is an employment law matter rather than an accounting one, and we would rather point you at a specialist than improvise — but it changes how you should structure a first hire this year.
Trades payroll covers how we run this monthly, including the CIS offset through the employer payment summary that makes a payroll worth having for a subcontractor company — see the cash-flow guide for why.
What has changed on CIS and the reverse charge, the dates coming up, and one number worth checking on your own jobs. No spam, unsubscribe any time.
Employer National Insurance at 15% on earnings above a £5,000 secondary threshold is the main addition — on a £32,000 salary that is £4,050. Against that, the Employment Allowance covers up to £10,500 of employer NIC, and the £100,000 previous-year eligibility cap was removed on 6 April 2025 so most small employers can claim it. Then add the auto-enrolment pension contribution, 5.6 weeks of statutory holiday, statutory sick pay which now runs from day one, employers' liability insurance and tools. For a company whose only employee is currently its director, the first hire often unlocks the Employment Allowance for the first time.
Not if you are a company with a single director who is the only employee liable for secondary Class 1 National Insurance — that is an express exclusion. Only one company in a group, or in a connected group of charities, may claim. Off-payroll workers cannot be counted towards eligibility, and neither can domestic staff other than care and support workers. The practical consequence for a trade business is that taking on a first genuine employee can make the allowance available for the first time, covering the employer NIC on both the new hire and the director's salary. The £100,000 previous-year secondary NIC cap was removed on 6 April 2025.
Yes, for absences starting on or after 6 April 2026. The Employment Rights Act 2025 removed both the lower earnings limit and the waiting days, so statutory sick pay is payable from day one to all eligible employees regardless of what they earn. It is paid at 80% of normal weekly earnings or £123.25 a week, whichever is lower. Absences that started before 6 April 2026 follow the old rules. The government's costing puts most of the extra national cost down to removing waiting days rather than the earnings limit, which is why this lands hard on trade employers: short one, two and three day site absences previously cost nothing.
£8.00 an hour from 1 April 2026, but only while the apprentice is under 19, or is 19 or over and in the first year of the apprenticeship. Once a 21-year-old apprentice completes the first year, they move to the full National Living Wage of £12.71. That step up catches employers who set a rate at the start of a two-year apprenticeship and never revisit it, and underpayment of the minimum wage is not a mistake HMRC treats gently. The other 2026 bands are £10.85 for 18 to 20 year olds and £8.00 for under 18s, with £12.71 for everyone aged 21 and over.
January 2027, when it falls from two years to six months, with uncapped compensatory awards and new fire-and-rehire protections. Before that, from 1 October 2026, the Employment Tribunal claim time limit extends from three months to six, and from 30 October 2026 employers acquire a duty to take all reasonable steps to prevent sexual harassment plus a duty to prevent third-party harassment — which matters on sites where your staff work alongside other firms' people. The practical implication of the January 2027 date is that a probation period stops being the safety net it has been, so documented performance conversations from week one become the protection instead.
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