From April 2025, payroll costs for UK construction companies changed dramatically. Employer National Insurance (NI) contributions increased, thresholds dropped, and allowances shifted. For construction management teams already dealing with labour-intensive projects, subcontractor costs, and tight margins, these changes mean higher employment costs and tighter cash flow. At Apex Accountants, we recognise that payroll planning for construction management firms is not just about compliance. It is about protecting profit margins, keeping projects on budget, and ensuring that cash flow remains steady. The new National Insurance rules affect every site manager, project lead, and finance director in construction. Understanding these changes is the first step, but applying strategies to absorb their impact is what protects your business in 2025/26 and beyond.
Key Changes in Payroll Costs in UK
Higher employer NI rates for construction sector
The employer’s secondary Class 1 NI rate has increased from 13.8% to 15%. This rise means that for every £100 of wages above the threshold, an extra £1.20 of NI is now payable compared with 2024/25. While it may seem small per pound, multiplied across dozens or hundreds of employees, this adds thousands to annual labour costs.
Lower threshold for NI contributions
The secondary threshold was reduced from £9,100 to £5,000. This means NI contributions now begin much earlier in an employee’s earnings. The new rate impacts even lower-paid roles, significantly affecting firms that rely on large numbers of site labourers and administrative staff.
Increased Employment Allowance
The Employment Allowance doubled to £10,500, offering some relief. Companies can reduce their total NI bill each year until they use up the allowance. For smaller contractors, this increase is valuable, but for medium and large construction firms with high staff numbers, the allowance is quickly consumed.
Wider eligibility rules
From April 2025, businesses with more than £100,000 Class 1 NI liability can still apply for Employment Allowance. This opens the door for more construction firms to claim relief, though single-director payrolls are still excluded.
Why this matters for construction management companies
Labour costs are often the largest element of a construction project. Whether on-site or in the office, rising employer NI directly increases the cost of running payroll. The lower threshold means more employees now attract NI charges, and the higher rate increases the burden across all wage levels.
For firms operating on long-term contracts or fixed-price bids, these changes put direct pressure on profit margins. If tender prices were calculated before April 2025, employers could already be locked into contracts that fail to reflect the new NI costs. This creates a need for proactive planning to avoid eroding profitability.
Examples of Payroll Costs For UK Construction Companies
- Employee earning £35,000
Under old rules, annual employer NI was around £3,574. Under new rules, it rises to £4,500. That is an extra £926 for one employee.
Old: 13.8% × (£35,000 − £9,100) ≈ £3,574.
New: 15% × (£35,000 − £5,000) = £4,500.
Increase ≈ £926 per year.
- Employee earning £45,000
The cost increased from £4,954 to £6,000, which is a rise of over £1,000 per year.
- Team of 10 employees at £35,000 each
The combined extra employer’s NI is more than £9,200 per year. After applying the new Employment Allowance, the net increase is still almost £4,000.
Gross increase ≈ £9,260.
Extra EA headroom vs 2024/25 = £5,500 (from £5,000 to £10,500).
Net rise ≈ £3,760 if fully eligible.
For larger construction firms with multiple sites, the total impact can quickly run into tens or even hundreds of thousands of pounds each year.
Strategies to absorb higher payroll taxes
Rebuild labour budgets and bids
Construction companies should revisit their 2025/26 labour budgets with a 15% NI rate in mind. Every tender, framework, or variation order needs to factor in the increased cost. Failure to do so risks underpricing projects and eroding profit.
Make full use of Employment Allowance
Switch on the Employment Allowance in payroll systems from April and track its usage each month. For eligible firms, the £10,500 allowance can be used to offset the early part of the NI bill, giving welcome relief in the first quarter of the year.
Implement pension salary sacrifice schemes
Salary sacrifice arrangements help both the business and the employee. Every £1,000 redirected to pension contributions saves the employer £150 in NI at the new rate. For construction firms with large payrolls, this can generate substantial savings while also improving staff retention.
Adjust pay structure for owner-managers
For directors, revisiting the balance between salary and dividends is now more important. Keeping salary at an efficient level and using dividends for the remainder can reduce exposure to the 15% employer NI rate. Careful planning is needed to remain compliant with company law and HMRC requirements.
Target NI reliefs on apprentices and young workers
Hiring under-21s, apprentices under 25, or qualifying veterans provides significant savings because employer NI is not charged up to certain thresholds. For construction firms with training programmes, this relief not only saves money but also develops the workforce for future projects.
Strengthen CIS and subcontractor reviews
Construction companies often rely on subcontractors under the Construction Industry Scheme (CIS). Ensuring workers are genuinely self-employed avoids compliance risks and allows labour Costs should be managed to avoid unnecessary employer National Insurance contributions. However, misclassification risks penalties, so proper checks are vital.
Leverage Freeport and Investment Zone reliefs
If a construction site is based in a Freeport or Investment Zone, employers can access reduced NI rates for eligible new hires. This targeted relief can save thousands per project if applied correctly.
Control overtime and workforce planning
With NI costs higher, overtime becomes more expensive. Better rota planning, timesheet management, and linking labour reports to project milestones reduce unnecessary costs. This discipline is particularly valuable on long-running infrastructure projects.
Improve payroll accuracy and compliance
Errors in NI category letters or missed reliefs cost money. Payroll teams should be trained and systems updated to apply the correct NI letters for apprentices, under-21s, and veterans. Reconciling payroll against accounting records each month ensures nothing slips through unnoticed.
Pricing and tendering adjustments
Construction bids should now clearly show employer NI costs. By breaking down these costs transparently, firms can justify higher tender prices and avoid disputes with clients. For existing contracts, variation clauses should be reviewed to see if NI increases can be passed on where government policy changes affect project costs.
Cash flow management under the new rules
National Insurance is paid monthly alongside PAYE. For construction firms with hundreds of employees, the higher NI rate can create sharp monthly outflows. By forecasting NI liabilities and aligning them with milestone receipts or staged payments, businesses can avoid cash flow crises. Rolling 13-week cash flow forecasts are essential to anticipate peaks and troughs.
Apprenticeships and training benefits
Investing in apprenticeships delivers long-term value. NI relief for apprentices under 25 reduces immediate payroll costs, while government grants and training incentives further offset expenditure. Structured apprenticeship programs also address the ongoing skills shortage in construction, strengthening project delivery in the long run.
Payroll systems and technology controls
Payroll software must be updated with 2025/26 NI rates for the construction sector to avoid incorrect deductions. Automating employment allowance claims, applying the right NI letters, and setting alerts when thresholds are reached reduce human error. Quarterly reviews of audit trails also protect against HMRC queries.
Compliance checklist for construction payroll teams
- Update payroll software with 2025/26 NI rates and thresholds.
- Enable and track Employment Allowance from April.
- Confirm NI category letters for under-21s, apprentices, and veterans.
- Re-price tender templates and labour calculators with 15% NI built in.
- Brief HR, finance, and site managers on new rules.
How Apex Accountants’ Payroll Planning for Construction Management Firms Help
At Apex Accountants, we specialise in payroll and tax planning for construction firms. We can:
- Model NI costs across different workforce scenarios.
- Re-price live bids and framework contracts with updated NI figures.
- Set up salary sacrifice, pension planning, and Employment Allowance claims.
- Train payroll teams on NI category letters and subcontractor status checks.
- Provide dashboards that track NI drift against budgets each month.
Our goal is to help construction companies remain profitable and compliant while adapting to the new payroll environment. Contact Apex Accountants today for a 30-minute free payroll planning consultation. We will review your payroll, model the impact of the 2025/26 NI changes, and suggest practical strategies tailored to your business.
