When considering hiring new staff, employers should explore the advantages of employing multiple part-time workers instead of one full-time employee. This approach can result in significant National Insurance savings. In this article, we’ll delve into the National Insurance contribution (NIC) system, highlighting how employers and employees can benefit from these savings by utilizing part-time employment arrangements.

Understanding National Insurance Contributions

Employers are required to pay secondary Class 1 National Insurance contributions on an employee’s earnings that exceed the relevant secondary threshold. For the 2023/24 tax year, the secondary threshold is set at £175 per week, £758 per month, and £9,100 per year. Higher secondary thresholds apply to specific categories, such as employees under 21, apprentices under 25, or armed forces veterans in their first year of civilian employment.

Utilising Secondary Thresholds

An employer is entitled to one secondary threshold per employee. By employing two part-time workers instead of one full-time employee, the employer can benefit from two secondary thresholds, resulting in NIC savings.

Illustrating National Insurance Savings

Let’s consider an employer deciding between hiring one full-time employee with a monthly salary of £4,000 or two part-time employees with individual monthly salaries of £2,000 each.

Full-Time Employee:

The employer will pay secondary Class 1 NIC of £447.40 per month (13.8% of (£4,000 – £758)) on the full-time employee’s earnings.

Part-Time Employees:

For each part-time employee, the employer will pay secondary Class 1 NIC of £171.40 per month (13.8% of (£2,000 – £758)). Therefore, the total secondary NIC for both part-time employees amounts to £342.80.

By opting for two part-time employees instead of one full-time employee, the employer can save £104.60 per month in National Insurance contributions, resulting in an annual saving of £1,255. This is achievable due to the ability to benefit from an additional secondary threshold of £9,100, on which no contributions are payable.

 

Employee Benefits and Considerations

Employees with multiple part-time jobs can also benefit from National Insurance savings. Each job allows them to utilise the primary threshold, which determines the point at which employee’s contributions become payable. For the 2023/24 tax year, the primary threshold is set at £242 per week, £1,048 per month, and £12,570 per year.

Aggregation of Earnings Rules

To prevent the artificial splitting of a job for the purpose of benefiting from multiple thresholds, aggregation of earnings rules are in place. If the jobs are with the same employer or affiliated employers, earnings must be aggregated, and the National Insurance liability should be calculated based on the total earnings. An exception exists when it is “not reasonably practicable” to aggregate the earnings.

 
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