Chancellor Rachel Reeves announced in the Budget 2024 (Wednesday 30th October 2024) that the Employer’s National Insurance rate will increase from 13.8% to 15% from April 2025. In the article, we examine the potential implications of this increase on umbrella company employees and provide some examples. We also offer advice to umbrella employees to help ensure the rise has a minimal impact on their take-home pay.

Employer’s National Insurance and the employment costs

As the employer of contractors and freelancers for payroll purposes, umbrella companies like Churchill Knight Umbrella are responsible for the employment costs – the Apprenticeship Levy (0.5%) and the Employer’s National Insurance Contributions (13.8%, rising to 15% from April 2025).

Our umbrella company employees do not work for us; they work for their end-hirer. As our role in the supply chain is to provide compliant employment for PAYE payroll purposes, we cannot cover the employment costs. However, any temporary worker using an umbrella company for their payroll should receive an inflated assignment rate, which accounts for the employment costs.

For example, only a few recruitment agencies provide an in-house PAYE service. However, the ones that do are likely to offer two rates to temporary workers – a rate for agency PAYE and an inflated assignment rate for workers who use an umbrella company (if an umbrella is an option).

Examples – how could the rise in Employer’s NI impact the take-home pay of contractors and freelancers using an umbrella company?

With the upcoming Employer’s NI rise to 15%, the take-home pay for umbrella employees will fall without an uplift in the assignment rate.

Here are a few examples*:

Daily Rate – £120

  • Weekly take-home pay during 2024/25 tax year – £428.66
  • Weekly take-home pay during 2025/26 tax year – £419.43

Daily Rate – £250

  • Weekly take-home pay during 2024/25 tax year – £816.82
  • Weekly take-home pay during 2025/26 tax year – £801.34

Daily Rate – £500

  • Weekly take-home pay during 2024/25 tax year – £1,402.16
  • Weekly take-home pay during 2025/26 tax year – £1,390.82

Daily Rate – £750

  • Weekly take-home pay during 2024/25 tax year – £1,953.72
  • Weekly take-home pay during 2025/26 tax year – £1,931.16

What should contractors and freelancers do regarding the rise in Employer’s National Insurance?

From April 2025, the rise in Employer’s National Insurance will result in the employment costs rising. Therefore, whether you are a contractor using Churchill Knight Umbrella or any umbrella company in the UK, we strongly advise you to initiate a conversation with your recruitment agency (or end-hirer if there is no agency) to discuss whether your assignment rate will be increased to cover the 1.2% rise in Employer’s NI.

Sarah O’Toole, director at Churchill Knight Umbrella, is hopeful umbrella employees will receive an uplift in their assignment rates after April 2025:

“It’s disheartening to see the government’s decision to increase Employer’s NI without considering the impact on the hundreds of thousands of workers using umbrella companies.

Umbrella companies continue to provide an extremely valuable service – helping temporary workers get paid compliantly and efficiently. However, by failing to consider umbrella employees in the Budget 2024, the government has let down temporary workers when the skilled work they do significantly boosts the UK economy.

As a compliance-driven umbrella, we will always ensure our workers are paid compliantly with HMRC’s rules and regulations. I am hopeful that responsible recruitment agencies will already have processes in place to ensure that candidates post-April 2025 will receive an inflated assignment rate to account for the rise in Employer’s NI. The last thing I want to see is our employees out of pocket due to the increase in employment costs.”

Request a take-home pay calculation today

Since 2017, Churchill Knight Umbrella has been a leading PAYE umbrella company providing contractors and freelancers with compliant and efficient PAYE payroll services. We’re proud to be accredited by the Freelancer and Contractor Services Association (FCSA) and certified by SafeRec. We always go above and beyond to ensure our registration process is straightforward and our employees receive the very best service in the sector.

To request a free, tailored take-home pay calculation, please call 01707 871622 or use our instant calculator, available here. If you have any questions about the rise in Employer’s NI and how it could potentially impact you post-April 2025, our Sales Professionals will happily discuss this with you.

 

*These calculations are for illustration purposes only and should not be treated as fact. The calculations are based on a £20 per week umbrella margin, 48 working weeks in the year, no expenses reclaimed, holiday pay processed and paid each payment frequency and auto-enrolment for pensions. To request a free, tailored take-home pay calculation from Churchill Knight Umbrella, please call our Sales Advisers on 01707 871622, or request a calculation here.