Navigating the 2026 Employment Rights Act and rising NI costs? We offer a compliant, cost-efficient alternative for UK SMEs.
The Employment Rights Act 2026, the April 2025 NI rate rise, and ongoing IR35 scrutiny are reshaping the cost and risk of employing people in the UK. This hub explains what has changed, what it means for your business, and how offshore staffing via VLS Sourcing provides a compliant path forward.
From April 2025, Employer National Insurance increased to 15% on earnings above £5,000 (down from the previous £9,100 secondary threshold). For many UK businesses, this represents a significant jump in the true cost of every employee.
What is Employer National Insurance? Employer NI is a compulsory payroll tax paid by UK employers on employee earnings above the secondary threshold. As of April 2025, the rate is 15% on earnings above £5,000 per annum — reduced from the previous £9,100 threshold. For a £35,000-a-year employee, this means the employer now pays approximately £4,500 in NI contributions annually — on top of the salary.
The April 2025 changes introduced two simultaneous pressures: the NI rate rose from 13.8% to 15%, and the threshold below which employers pay nothing fell from £9,100 to £5,000. Together, these changes mean that for every £35,000 employee, the employer's NI liability increased by roughly £900 per year — before accounting for any other costs.
For a business with 10 employees on an average salary of £32,000, the combined NI increase across the team amounts to approximately £9,000 per year in additional cost — with no productivity gain whatsoever. For businesses operating on thin margins (retail, hospitality, professional services), this is material.
The Employment Allowance — which allows smaller employers to reduce their NI bill — was increased to £10,500, offering some relief. However, businesses with annual NI bills above that amount receive no relief on the excess. Many growing SMEs in this bracket feel the full impact.
What should UK business owners do? The most practical options are: restructuring new hires as offshore engagements (where UK NI does not apply), reducing headcount through efficiency, or absorbing the cost. VLS Sourcing's EOR model addresses the first option directly — new hires placed through us carry zero UK Employer NI liability.
Via VLS Sourcing EOR: Remote hires in India carry zero UK Employer NI obligation. You pay one all-inclusive monthly service fee — nothing more.
The Employment Rights Act 2026 represents the most significant overhaul of UK employment law in a generation. Here is what it means for businesses hiring in the UK — and how offshore staffing via VLS Sourcing can reduce your exposure.
The Employment Rights Act 2026 introduces several major changes to UK employment law, including the removal of the two-year qualifying period for unfair dismissal claims (replaced by a statutory initial period of up to six months), day-one rights to flexible working requests, stronger trade union rights, and new "zero-hours" protections. Together, these changes significantly increase the legal and financial risk of a wrong hiring decision in the UK.
The two-year qualifying period is abolished. New employees can bring unfair dismissal claims from day one (subject to a statutory initial period of up to 6 months for new hires). A wrong hire is now a legal risk from the moment they start.
Employees can request flexible working from day one of employment. Employers must now demonstrate a clear business reason for any refusal.
Workers on irregular hours contracts gain the right to request a guaranteed-hours contract after 12 weeks. Businesses using casual labour face new administrative obligations.
Unions gain easier access rights and improved recognition procedures. Businesses in certain sectors may face increased collective bargaining obligations.
The waiting days before SSP kicks in are removed. Employers pay Statutory Sick Pay from the first day of illness — removing the current three-day rule.
Critical consideration: Under the new rules, a probation period that doesn't result in a clean separation could expose your business to an unfair dismissal claim — even within 6 months. Employment tribunal awards are uncapped for some claims. Legal costs alone can reach £15,000–£30,000+ even if you win.
When a remote professional is placed through VLS Sourcing's EOR model, they are employed by VLS Sourcing in India — not by your UK entity. The Employment Rights Act 2026 governs UK employment relationships. It does not apply to this arrangement.
This means:
We recommend that all UK business owners take independent legal advice on their specific situation. The information in this hub is general guidance, not legal advice.
Learn About Our EOR Model →IR35 remains one of the most-feared pieces of tax legislation for UK businesses engaging contractors. Here is a plain-English explanation of how it works — and why VLS Sourcing engagements fall entirely outside its scope.
IR35 (officially the "off-payroll working rules") is HMRC legislation designed to ensure that contractors who work like employees — but operate through personal service companies (PSCs) — pay the same income tax and National Insurance as direct employees. Since April 2021, medium and large UK businesses have been responsible for determining whether a contractor engagement is "inside" or "outside" IR35. Getting it wrong can result in substantial back-tax claims, interest, and penalties.
A UK contractor operates through their own limited company. If HMRC determines they work "like an employee," your business is liable for unpaid PAYE tax and NI — backdated to when the engagement started. Penalties can be severe.
You are responsible for the IR35 determination if you are a medium or large business.
Engaging a sole trader directly may appear simpler, but HMRC's employment status tests still apply. If the relationship looks like employment (regular hours, integration into the business, one main client), HMRC may challenge it.
The "IR35 for sole traders" argument is less settled legally, but HMRC continues to pursue cases.
You pay VLS Sourcing a service fee — a B2B payment to an Indian entity. The individual is employed by us in India. They do not operate a PSC. They are not a UK contractor. IR35 does not apply.
Your UK entity is outside the IR35 chain entirely. HMRC scrutiny of our arrangement is not an IR35 matter.
Disclaimer: This section is general guidance only and does not constitute legal or tax advice. Tax law is complex and fact-specific. We strongly recommend taking advice from a qualified tax adviser or employment solicitor about your specific circumstances before changing your engagement model.
Offshore staffing via a managed EOR model is not for every business or every role. Here is an honest guide to when it works — and when it may not.
If you are not sure whether your role qualifies, book a free call — we'll give you an honest assessment, even if that means suggesting you hire in the UK.
Book a free 30-minute call with our team. We'll review your current structure, identify which roles could move offshore, and model your potential savings.
High-intent, low-competition topics for the VLS Sourcing blog — coming soon.
Targeting UK SME owners searching for practical implications of ERA 2026 without legal jargon.
High intent · Low competitionInteractive calculator-led content for business owners searching for NI cost impact — prime featured snippet territory.
High intent · Medium competitionMost IR35 content targets large companies. This targets SMEs with 10–50 employees — significantly underserved.
High intent · Low competitionBottom-of-funnel content for UK owners actively researching India outsourcing — highly convertible traffic.
High intent · Low competition"Employer of Record UK" is a rapidly growing search term. First-mover content here will capture significant organic traffic.
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