In the October 2024 Autumn Budget, the Chancellor announced the largest increase to employer National Insurance in over a decade. From 6 April 2025, the rate rose from 13.8% to 15% and the threshold at which employers start paying dropped from £9,100 to £5,000. The government expects these changes to raise around £25 billion a year.
Now that the dust has settled and businesses have had their first payroll runs under the new rules, the picture is clearer. Some small businesses are paying nothing at all thanks to the increased Employment Allowance. Others are absorbing thousands of pounds in extra costs. This article lays out exactly what changed, who wins, who loses, and what practical steps are still available to manage the impact.
The three changes at a glance
Three things happened on 6 April 2025, and they all pull in different directions depending on the size of your business.
The rate went up. Employer NI rose from 13.8% to 15% — a 1.2 percentage point increase on every pound earned above the threshold. That applies to Class 1 secondary contributions, and also to Class 1A (benefits in kind) and Class 1B (PAYE settlement agreements).
The threshold went down. The secondary threshold dropped from £9,100 to £5,000 per year. This means you now start paying employer NI on £4,100 more of each employee's earnings than you did the previous year. That shift alone adds £615 per employee before the rate increase even kicks in.
The Employment Allowance went up. To offset the impact on smaller businesses, the allowance more than doubled from £5,000 to £10,500. The previous restriction — which blocked access if your total employer NI bill exceeded £100,000 — was removed entirely.
How much more will you actually pay?
The answer depends on how many people you employ and what you pay them. Here's the year-on-year comparison for a single employee at common salary levels — before applying the Employment Allowance:
| Annual salary | 2024/25 NI | 2025/26 NI | Increase |
|---|---|---|---|
| £12,570 | £479 | £1,136 | +£657 |
| £20,000 | £1,504 | £2,250 | +£746 |
| £25,000 | £2,194 | £3,000 | +£806 |
| £30,000 | £2,884 | £3,750 | +£866 |
| £40,000 | £4,264 | £5,250 | +£986 |
| £50,000 | £5,644 | £6,750 | +£1,106 |
| £75,000 | £9,094 | £10,500 | +£1,406 |
The increase per employee ranges from roughly £650 at lower salaries to over £1,400 for higher earners. The threshold drop hits lower-paid staff proportionally harder — an employee on £12,570 sees their employer's NI bill more than double.
Quick rule of thumb: for every £10,000 of salary above £5,000, you'll pay £1,500 in employer NI. Under the old rules it was £1,380 per £10,000 above £9,100.
The Employment Allowance: who it helps and who it doesn't
The increased £10,500 Employment Allowance is the single biggest mitigating factor. HMRC estimates around 865,000 employers will pay zero employer NI in 2025/26 as a result. But eligibility isn't universal, and the relief runs out quickly as you grow.
You can claim if:
You're a business or charity with at least one employee (other than the sole director), you don't do more than half your work in the public sector, and you claim through your Employer Payment Summary (EPS) via payroll software or HMRC's Basic PAYE Tools. You can claim at any point in the tax year, but the sooner you do, the sooner it reduces your monthly NI payments.
You can't claim if:
You're a single-director company with no other employees liable for employer NI. This is the most common exclusion — many limited company directors who pay themselves a salary cannot use the allowance. You also can't claim if more than half your work is for the public sector (though charities are exempt from this rule).
How far does it stretch?
| Team size & salary | Total NI bill | After allowance | Saving |
|---|---|---|---|
| 3 staff × £25,000 | £9,000 | £0 | 100% |
| 4 staff × £30,000 | £15,000 | £4,500 | 70% |
| 6 staff × £25,000 | £18,000 | £7,500 | 58% |
| 10 staff × £30,000 | £37,500 | £27,000 | 28% |
| 10 staff × £50,000 | £67,500 | £57,000 | 16% |
For micro-businesses with three or four employees, the allowance can eliminate the NI bill entirely. But by the time you reach ten staff on average salaries, it covers less than a third of the total. For larger businesses it becomes a rounding error.
Who's hit hardest
Businesses with lots of lower-paid or part-time staff
The threshold drop from £9,100 to £5,000 is the real sting for hospitality, retail, care, and other sectors that rely on part-time workers. Previously, an employee earning £9,100 attracted zero employer NI. Now that same employee triggers £615 in contributions. Multiply that across 50 part-time staff and you're looking at over £30,000 in new costs that simply didn't exist last year.
Growing SMEs in the 5–20 employee range
These businesses are large enough to have exhausted the Employment Allowance but small enough that every additional cost hits margins hard. A company with 12 employees on average salaries can expect somewhere between £8,000 and £14,000 in additional annual NI — a material hit to profit.
Single-director limited companies
Directors who pay themselves a salary and can't claim the Employment Allowance face higher employer NI with no offset. The optimal salary for a sole director may now need recalculating. Many accountants are advising a salary at the personal allowance level of £12,570, with the rest extracted as dividends — though this depends on individual circumstances.
Don't forget the knock-on effects. The higher NI rate also applies to Class 1A contributions on benefits in kind. If you provide company cars, private medical insurance, or other taxable benefits, those costs have increased by the same margin.
Who actually benefits
It's not all bad news. Some small employers are genuinely better off under the new rules, because the Employment Allowance increase outweighs the higher NI costs.
A business with three employees earning £30,000 each owed £8,653 in employer NI in 2024/25 and could claim £5,000 in Employment Allowance, leaving a net bill of £3,653. In 2025/26, the NI bill is £11,250 but the allowance is £10,500, leaving just £750. That's a net saving of nearly £3,000 compared to the previous year.
HMRC estimates around 250,000 employers will actually see a decrease in their NI liability for 2025/26. If you have a small team and weren't previously claiming the full allowance, it's worth running the numbers — you might be one of them.
Seven things you can do right now
1. Claim the Employment Allowance immediately
If you haven't claimed for 2025/26 yet, do it today. It's a simple tick-box on your next Employer Payment Summary. You don't need to wait for HMRC confirmation — the allowance takes effect from your next submission. Note that from April 2025, state aid rules no longer apply, so always answer "No" to the state aid question.
2. Introduce salary sacrifice for pensions
Salary sacrifice is arguably the single most effective tool for managing the NI increase. When an employee gives up part of their salary in exchange for employer pension contributions, both sides save on NI. At the new 15% rate, every £1,000 sacrificed saves you £150 in employer NI and saves the employee £100 in employee NI plus income tax. On a team of ten with £2,000 each in sacrifice, that's £3,000 in annual employer NI savings alone.
3. Check your NI categories
Apprentices under 25 (category H), employees under 21 (category M), and veterans in their first 12 months of civilian employment (category V) all have a much higher employer NI threshold of £50,270. If you have eligible staff on the wrong category, you could be overpaying by thousands per person. Review your payroll and correct any miscategorised employees.
4. Review your hiring model
The NI increase has widened the gap between the cost of an employee and a contractor. For project-based or specialist work, engaging someone outside IR35 means no employer NI, no pension, and no holiday pay. The caveat is that IR35 rules are strict — the engagement must genuinely reflect self-employment. But for work that legitimately fits the model, the savings are now larger than ever.
5. Budget for the full cost of your next hire
If you're planning to recruit, the Employment Allowance won't help with incremental hires once it's used up. Budget for the gross salary plus 15% employer NI on everything above £5,000, plus pension, plus holiday pay. For a £35,000 hire, that's around £4,500 in employer NI alone — a figure that should be in your financial planning before you post the job advert.
6. Consider restructuring benefits
Since Class 1A NI on benefits in kind also increased to 15%, review which benefits you offer and whether some could be delivered more tax-efficiently. For example, an electric vehicle salary sacrifice scheme can be highly efficient because the benefit-in-kind rate on EVs remains just 2% of list price, meaning the NI liability is minimal.
7. Model your specific situation
General advice only goes so far. The actual impact depends on your exact team size, salary mix, and whether you're eligible for the Employment Allowance. Running the numbers for your specific situation takes five minutes and could reveal savings — or flag costs — you hadn't anticipated.
See your exact year-on-year impact
Our calculator shows 2024/25 vs 2025/26 employer NI side by side, with pension, holiday pay and optional costs included.
Use the Employee Cost Calculator →What happens next
The £5,000 secondary threshold has been confirmed until at least April 2028. There's no indication the 15% rate will change before then either. This isn't a one-year adjustment — it's the new baseline.
The National Living Wage continues to rise, reaching £12.21 per hour from April 2025 for workers aged 21 and over, with a further increase to £12.71 announced for April 2026. Each wage increase compounds the employer NI cost, since more of each employee's earnings now sits above the £5,000 threshold. Businesses with minimum-wage staff should model the combined effect of rising wages and higher NI, not just one or the other.
Mandatory payrolling of benefits in kind arrives in April 2026, which won't change the amount of NI you owe but will change how you report and pay it. Now is a good time to make sure your payroll processes are up to date.
The bottom line
The April 2025 employer NI changes are significant but not uniform. Very small businesses with three or four employees may be better off thanks to the increased Employment Allowance. Mid-sized SMEs with 5 to 20 staff face the sharpest impact, adding £500 to £1,400 per employee per year. Businesses with large numbers of part-time or lower-paid workers are disproportionately affected by the threshold drop.
The most effective responses — claiming the Employment Allowance, introducing salary sacrifice, and checking NI categories — are all available now and don't require major restructuring. If you haven't modelled the impact on your specific business yet, our True Cost of an Employee Calculator will show you the numbers in under a minute.