Employers evaluating staffing options in 2024 can potentially reduce costs by employing multiple part-time workers instead of one full-time employee, leveraging advantages in National Insurance contributions (NIC). Here’s a detailed look at how this strategy can benefit both employers and employees:
1. Understanding National Insurance Contributions (NIC)
Employers are required to pay secondary (employer’s) Class 1 NIC on employees’ earnings that exceed the relevant threshold. For the tax year 2023/24, these thresholds are:
- Weekly: £175
- Monthly: £758
- Annual: £9,100
Special higher thresholds apply to employees under 21, apprentices under 25, and armed forces veterans in their first year of civilian employment.
2. Benefits of Employing Part-Time Workers
- One Threshold per Employee: Employers are entitled to one secondary threshold per employee. Therefore, hiring two part-time employees instead of one full-time employee allows employers to benefit from two secondary thresholds.
- NIC Savings Example:
Scenario: An employer is considering hiring:
- Option 1: One full-time employee earning £4,000 per month.
- Option 2: Two part-time employees, each earning £2,000 per month.
- Full-Time Employee Calculation: NIC payable = £447.40 per month (13.8% on (£4,000 – £758)).
- Part-Time Employees Calculation: NIC per part-time employee = £171.40 per month (13.8% on (£2,000 – £758)), totaling £342.80 for both.
- Savings Calculation: By choosing two part-time employees, the employer saves £104.60 per month in NIC, totaling an annual saving of £1,255. This is due to utilizing an additional secondary threshold (£9,100) on which no contributions are payable.
3. Employee Considerations
- NIC for Employees: Employees also benefit from NIC savings if they have multiple part-time jobs, as each job’s earnings are subject to primary contributions calculated against the primary threshold (£242 weekly, £1,048 monthly, £12,570 annually for 2023/24).
- Aggregation of Earnings: Anti-avoidance rules prevent artificial splitting of jobs to benefit from multiple thresholds. If jobs are with the same employer or associated employers, earnings must be aggregated for NIC calculation, unless it’s deemed ‘not reasonably practicable’ to do so.
Conclusion
Employing part-time workers offers significant NIC savings for employers compared to hiring full-time employees, thanks to the ability to utilize multiple secondary thresholds. This strategy not only reduces operational costs but also provides flexibility and potential savings for employees with multiple part-time positions. For more detailed guidance tailored to your specific circumstances, consulting with a tax professional or accessing official resources like the HMRC is recommended.
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