Fee earners, paralegals, support staff and the fixed-share partner who may not be self-employed at all. Payroll run properly, auto-enrolment handled, and the salaried members rules checked before HMRC does it for you.
Payroll in a law firm is a normal payroll with one abnormal question sitting on top of it. The normal part is expensive enough: employer national insurance at 15% from a £5,000 secondary threshold since 6 April 2025 means the true cost of every role is a long way above its salary, and the salary is only the part anybody negotiates.
The abnormal part is the salaried members rules. If your LLP has fixed-share or salaried members, some of them may be employees for income tax whether anyone intended it or not — which brings PAYE and 15% employer national insurance on their remuneration, payable by the firm. That is the single most expensive payroll question in a law firm, and it is one most general payroll bureaux never think to ask.
The numbers
Illustrative only. A paralegal on £30,000 costs the firm £30,000 of salary plus employer national insurance of 15% on the £25,000 above the £5,000 secondary threshold — £3,750 — before pension, before benefits and before cover. That is 12.5% on top of the advertised figure, and it is the number that ought to be on the table when a department asks for another head. The Employment Allowance offsets up to £10,500 of secondary national insurance across the firm as a whole, not per employee, so it is absorbed quickly by any firm of size.
The law firm question
The salaried members rules are sections 863A to 863G of ITTOIA 2005, inserted by Finance Act 2014 and in force from 6 April 2014. They apply to LLPs. Where all three conditions are met, the member is treated for income tax purposes as an employee of the LLP under a contract of service — PAYE on their remuneration, and 15% employer national insurance on it, borne by the firm.
Met if it is reasonable to expect that at least 80% of the total amount payable by the LLP for that member's services will be disguised salary: an amount that is fixed, or that is variable but without reference to the LLP's overall profits or losses, or that in practice is not affected by them. A guaranteed fixed share with a discretionary top-up is squarely in the frame.
Met if the mutual rights and duties of the members, and of the LLP and its members, do not give that member significant influence over the affairs of the partnership. This is answered by the LLP agreement and by how the firm is genuinely run, not by a job title.
Met if the member's capital contribution is less than 25% of the disguised salary reasonably expected for the tax year. It is tested at 6 April, or on joining, then annually, and re-tested whenever the contribution or the circumstances change.
Fail any one condition and the member stays self-employed. Condition C is the one firms most often engineer around, by taking the member's capital contribution above the 25% mark. That is a real decision with real consequences for the individual — money in, and risk — and HMRC's Spotlight 66 targets LLP arrangements used to disguise employment income, so contrived structures are on its radar. Get the analysis done properly on each member rather than applying one answer to a whole tier.
If your firm is an LLP, this sits directly alongside the profit allocation and capital questions on the LLPs and partnerships page, and it is one of the reasons the structure comparison is not purely a tax calculation.
Payslips, starters, leavers, statutory pay, and Real Time Information filed on time — for fee earners, paralegals, secretaries, support and management alike.
Assessment each pay period, enrolment, opt-outs and opt-ins processed, contributions submitted, re-enrolment and the declaration of compliance diarised and dealt with.
Conditions A, B and C tested member by member, with the capital contribution position and the retest points recorded — before it becomes an HMRC conversation.
Salary plus 15% employer national insurance from the £5,000 threshold, plus pension and benefits at 15% Class 1A — the figure that should be on the table before a hire is agreed.
The £10,500 allowance claimed where the firm is eligible, and the claim re-checked each April and after any change to how the practice is owned.
Payroll flowing straight into your bookkeeping and into staff cost as a percentage of fee income, so drift is visible in months rather than at year end.
Accounts and management figuresPayroll is where the firm's largest cost meets its biggest classification risk, so it does not sit on its own. It feeds the staff cost ratio in your management figures, it interacts with partner tax and drawings the moment a salaried member is reclassified, and it is one of the practical reasons a firm's structure gets revisited. If you are a sole practitioner with two support staff, the same rules apply and the same allowance is worth claiming.
Employer secondary Class 1 national insurance runs at 15% from 6 April 2025, and the secondary threshold at which it starts is £5,000 a year. That combination is expensive for a firm with a large support team, because the low threshold means part-time and junior roles now attract employer national insurance on almost all of their pay. Benefits are charged at the same rate: Class 1A and Class 1B are also 15%. The practical consequence is that the true cost of a hire is well above the salary, and it is worth calculating properly before you advertise a role rather than after somebody accepts it.
Most can. The Employment Allowance is £10,500 for 2025/26 and remains £10,500 for 2026/27, and it reduces an eligible employer's secondary Class 1 national insurance bill. It is claimed through your payroll software and is not automatic, so a firm that has changed payroll provider or changed structure is exactly the firm that quietly stops claiming it. Eligibility turns on your own circumstances rather than on being a law firm, so it is worth confirming each April that the claim is actually running rather than assuming it, and worth checking again after any change to how the practice is owned.
They are sections 863A to 863G of ITTOIA 2005, inserted by Finance Act 2014 and in force from 6 April 2014. They apply only to LLPs. If all three of Conditions A, B and C are met, the member is treated for income tax purposes as an employee of the LLP under a contract of service. That means PAYE on their remuneration and employer secondary Class 1 national insurance at 15% on it, which is a cost the firm carries rather than the member. Fixed-share and salaried partners are the population at risk. Fail any one of the three conditions and the member remains self-employed.
Condition A is the disguised salary test: it is met if it is reasonable to expect that at least 80% of the total amount payable for the member's services will be disguised salary, meaning fixed, or variable without reference to the LLP's overall profits or losses, or in practice unaffected by them. Condition B is met if the mutual rights and duties of the members do not give that member significant influence over the affairs of the partnership. Condition C is met if the member's capital contribution is less than 25% of their expected disguised salary, tested on joining or at 6 April, then annually and again whenever circumstances change.
Statutory sick pay for 2026/27 is £123.25 a week, or 80% of average weekly earnings if that is lower. Entitlement sits alongside the lower earnings limit of £129 a week for 2026/27, which is the point at which an employee begins to build entitlement to contributory benefits even though employee national insurance itself does not start until £12,570 a year. Most law firms pay contractual sick pay well above the statutory figure, but the statutory position still has to be operated correctly in the payroll, and it is the floor beneath any contractual scheme you offer.
A free review of your payroll, your Employment Allowance position and — if you are an LLP — where each fixed-share member sits against Conditions A, B and C.
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