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Rules and paperwork
Taking on your first employee: employer National Insurance at 15% above £5,000, and how the £10,500 Employment Allowance covers it
A £14 an hour full-time hire in a trades firm triggers £3,618 of employer National Insurance. The £10,500 Employment Allowance can cover it, with the sum shown.
The van is full, the diary is booked into December, and the plan is to take on a first employee. Most tradespeople have a price in mind for the wage and none for what sits on top of it. For employer National Insurance, in 2026 to 2027, that figure can be nothing at all, but only if the claim is made.
The two numbers that decide it
GOV.UK's employer rates for 2026 to 2027 give:
- Employer (secondary) Class 1 National Insurance of 15% on earnings above the secondary threshold.
- A secondary threshold of £96 a week, £417 a month or £5,000 a year.
- An Employment Allowance of £10,500, which reduces the employer National Insurance a business pays.
The first £5,000 of each employee's pay carries no employer National Insurance. The rest is taxed at 15%, and the Employment Allowance is a credit against that bill.
A first hire worked
A labourer or electrician's mate, full time, on £14 an hour:
- Pay: £14 × 40 hours × 52 weeks = £29,120 a year.
- Pay above the threshold: £29,120 − £5,000 = £24,120.
- Employer National Insurance: £24,120 × 15% = £3,618 a year, about £301 a month.
- Employment Allowance: £10,500 − £3,618 = £6,882 left over.
On a payroll run the figure moves by a few pounds, because software works to the weekly or monthly threshold (£417 a month, not £5,000 divided exactly) and rounds each pay period. The annual figure is the right size for a quote or a cash plan.
AI staff and workflows for trades and building firms. Starting with enquiry to quote.See what we would set up| Without the allowance | With the £10,500 allowance | |
|---|---|---|
| Wages | £29,120 | £29,120 |
| Employer National Insurance | £3,618 | £0 |
| Total before pension and holiday cover | £32,738 | £29,120 |
How far the allowance goes
£10,500 ÷ £3,618 is about 2.9. So the allowance covers the employer National Insurance for two such full-time hires entirely (£7,236) and most of a third. The third would owe £3,618 − £3,264 = £354, which matches 3 × £3,618 = £10,854 less £10,500. A firm that stays at one or two full-time employees therefore pays no employer National Insurance on them.
The allowance is for the whole tax year, 6 April to 5 April, and it comes off in each payroll run until it is used up or the year ends. Hiring in October, you will use only part of it in 2026 to 2027, and the unused part does not carry over. Your payroll software works out a part-year hire period by period, so let it run the figures.
Who can claim
GOV.UK's eligibility page says you can claim if you are a business or public body and do less than half your work in the public sector. It excludes:
- A company with only one director where that director is the only employee liable for secondary Class 1 National Insurance.
- Someone you employ for personal, household or domestic work (a nanny or gardener), unless they are a care or support worker.
- Someone whose earnings are within the IR35 off-payroll working rules.
The page does not list sole traders as excluded or as eligible. A tradesperson trading as a sole trader or partnership with a payrolled employee is not in the exclusions, but confirm the position with your accountant or HMRC before you rely on it. If you trade through a limited company and your only paid person is you as a director, you are in the director exclusion until you pay a second person.
Do the claim
The allowance does not apply by itself. You tell HMRC through your payroll software when you run payroll, and the software then takes it off each run. If you use an accountant, ask them to set it up when the first employee is added to the payroll.
AI staff and workflows for trades and building firms. Starting with enquiry to quote.See what we would set upWhat else the first hire adds
- Employers' liability insurance. Once you employ someone it is compulsory; our guide to public liability and employers' liability cover shows the £5 million minimum and the daily fine.
- Sick pay. A first sick day is paid by you from day one, as set out in our Statutory Sick Pay guide for small trades firms.
- Pricing. An employee's cost is wages plus these costs divided by the hours you can charge, which the day rate calculator can help you work out.
Overlyft builds AI staff who join a trades office and prepare the first-hire cost sheet, the payroll checklist and the allowance claim reminder for the owner to check, so the wage is priced before the contract is signed.
This is general information, not tax advice. Check GOV.UK and your own figures with your accountant.
Where this comes from: GOV.UK, Rates and thresholds for employers 2026 to 2027 (employer Class 1 National Insurance 15% above the secondary threshold of £96 a week, £417 a month, £5,000 a year; Employment Allowance £10,500); GOV.UK, Employment Allowance: check if you are eligible (business or public body, less than half of work in the public sector; exclusions for a company whose only employee liable for secondary Class 1 is its sole director, for domestic or household work, and for off-payroll IR35 earnings). Read 8 October 2026.
AEO Lookup editorial team
We write practical guides for people who run small UK firms, and we check every fact against its source on the date shown. Read how we review, or tell us if something has changed.
