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With the new Labour Government have come many changes (both actioned and announced) including the recent Employer’s National Insurance contributions (NICs) and the Employment Rights Bill. Both look to bring pressure on organisations, particularly those employing PAYE workers or those engaging via a PSC working ‘inside IR35’.
It’s raised the question – what happens next for businesses and how might some of them mitigate the impact of the recent and upcoming changes?
What were the April 2025 NICs changes?
Changes to the Employer’s NICs came into effect for the 25/26 tax year on 6th April. A quick recap of the 2 main updates:
1. Threshold decrease – The threshold for NICs decreased by nearly half, from £9,100 to £5,000, resulting in more of an employee’s annual salary being subject to Employer’s NICs.
2. Rate increase – The % rate that employers pay on an employee’s salary above the threshold has increased from 13.8% to 15%. A seemingly small jump, the increase could be bigger that it initially seems.
Let’s put this into context – the average UK salary is determined as £37,000. An Employer’s NICs on this given salary would increase by about £950 for the year.
We admit it might not sound substantial, but considering many organisations can engage with 10s or 100s of PAYE workers or contractors, it could be a heavy weight to shoulder.
Other changes
The Employment Allowance limit has also seen an increase, from £5,000 to £10,500. So, yes, the overall National Insurance bill employers are liable for will go up, but they’ll only pay contributions after the £10,500 allowance is used up (i.e. any part of the bill above the limit).
Day-1 workers rights to prepare for
On top of the Employer’s NICs changes, companies may have more changes on the way to prep for. Introduced to parliament October 2024, the Employment Rights Bill is considered a ‘landmark move’ centred around making more rights available to workers from day 1 of employment.
Referred to by many as “day-1 rights”, they’re designed to extend basic rights to new employees, safeguarding them against unfair practices. Key highlights of day-1 rights include:
Protection from unfair dismissal
Removes the current 2-year service requirement for unfair dismissal claims.
Statutory probation periods
Allows for proper assessment of hires and the ability to fairly dismiss for acceptable reasons with a “lighter touch” process.
Statutory Sick Pay
Removes current ‘3 days of illness’ requirement and £125 minimum threshold for sick pay eligibility.
Parental & paternity leave
Removes minimum service thresholds for paid paternity and unpaid parental leave.
Statutory bereavement leave
Introduces a day-one right to bereavement leave following a loss of a relative.
NICs changes & day-1 rights equal a lot of change
It’s safe to say this all culminates in a lot of potential change for organisations. Employer’s NICs updates have already rolled out with businesses now considering how to manage financial impacts.
But with the Employment Rights Bill’s proposed day-1 rights expected no earlier than Autumn 2026, it’s hard to predict how they’ll influence recruitment processes or what this might do to the market.
Effects on hiring companies
Any organisations engaging with PAYE (or ‘inside IR35’) workers are likely facing an increased NICs bill and extra compliance steps to prepare for day-1 rights. This could result in:
- Extra resources to review and update employment contracts
- Comprehensive updates to policies (e.g. probation period & dismissal procedure guidelines)
- Reduced worker engagements and smaller workforces (decreasing overall NICs bill)
- Shift in hiring strategies, and more engagement with bona fide ‘outside IR35’ workers
Effects on the market
A shift in hiring strategies towards more limited company contractors/personal service companies (PSCs) may result in less opportunities for those looking for engagements via a PAYE model. That may lead to more workers adapting to working as PSCs, or even as sole traders, so work remains available to them. This may also see an increase in ‘outside IR35’ engagements, but any such engagements will need to be supported with evidence, as we know.
What businesses should keep in mind
Any business changing the type of worker they engage should be mindful of any legislation that might now apply to their contracts, including IR35. It’s important to make sure every care is taken when determining IR35 status and other factors have been considered.
Check their status is bona fide
While not PAYE workers, limited company contractor (or PSCs) aren’t therefore automatically determined as ‘outside IR35’. You need to be certain they’re bona fide ‘outside IR35’ or ‘inside IR35’.
Correctly determining the IR35 status of a contractor first comes down to the written contract terms and working arrangements (i.e. how work is conducted or managed). A status determination statement is recommended for each off-payroll contract as IR35 status can vary contract-to-contract.
Understand IR35
When employing off-payroll workers it’s crucial to understand IR35 and that every care is taken to ensure an IR35 status determination is correct. You should:
- Understand obligations & factors – Get a full understanding IR35, your obligations and factors to consider when determining employment status. Read through the off-payroll working rules and learn about the minor status tests.
- Seek professional advice – If there’s uncertainty around what IR35 is and your obligations, it’s always advised to consult a professional.
Check insurance needs
Whether you’re making a shift towards engaging with off-payroll contractors/PSCs or reassessing current engagements, you should always check your insurance cover.
Not all contractors or subcontractors will be covered by a hirer’s business insurance policy and may need to have their own, including public liability insurance or professional indemnity cover. If you’re not sure, read through your policy or ask your provider directly.
Partnering with Kingsbridge
Whether you’re a recruitment agent, accountant, or provide professional services to contractors and freelancers, partnering with Kingsbridge not only means you benefit from expert insurance & IR35 advice and support, your contractors do too – we can help them secure comprehensive Contractor Insurance including fundamental cover like PL, PI, personal accident and more.
As a Partner, referring contractors could also offer an extra revenue stream – talk to one of our in-house specialists to find out more. You can get in touch online or call on 01242 808740.
