Employer National Insurance Changes Explained: What the 15% Rate & £5,000 Threshold Mean for You

Published 15 Oct 2025 · Updated 26 Feb 2026

The Autumn Budget 2024 introduced the most significant change to employer National Insurance Contributions (NICs) in over a decade. From 6 April 2025, the employer NI rate rose from 13.8% to 15%, while the Secondary Threshold — the point at which employers start paying NI on each employee's earnings — was slashed from £9,100 to just £5,000. These changes remain in effect for the 2026/27 tax year and have far-reaching implications for businesses, employees, and anyone negotiating a salary.

What Changed and Why?

Chancellor Rachel Reeves announced the employer NI increase in the October 2024 Budget as part of a plan to raise approximately £25 billion in additional revenue. The two changes work together to significantly increase the tax burden on employers:

• Rate increase: The employer NI rate rose from 13.8% to 15% — an increase of 1.2 percentage points applied to all earnings above the threshold.
• Threshold reduction: The Secondary Threshold dropped from £9,100 to £5,000. This means employers now pay NI on an additional £4,100 of each employee's salary that was previously exempt.

The government simultaneously increased the Employment Allowance from £5,000 to £10,500 and removed the previous eligibility cap, meaning all employers can now claim it regardless of their total NI bill. This partially offsets the increase for small businesses.

How Much More Does It Cost to Employ Someone?

The combined effect of a higher rate and a lower threshold is substantial. Here is a comparison of employer NI costs at different salary levels:

For a typical employee on £35,000, their employer now pays roughly £926 more per year in NI alone. For a business with 50 employees at that salary, the additional cost is approximately £46,300 per year — before accounting for the Employment Allowance offset.

Does This Affect Employee Take-Home Pay Directly?

Not directly. Employer NI is paid by the employer, not deducted from your salary. Your payslip will not show a change in your own NI deductions, which remain at 8% between the Primary Threshold (£12,570) and the Upper Earnings Limit (£50,270), and 2% on earnings above that.

However, the increase has significant indirect effects that will impact employees over time:

• Slower wage growth: With higher employment costs, many employers will have less budget available for pay rises. Surveys from the CIPD and recruitment firms show that salary increase budgets for 2025–2027 have been reduced in response.
• Reduced hiring and headcount: Some businesses — particularly in retail, hospitality, and care — may hire fewer staff, reduce hours, or delay expansion.
• Benefits and perks affected: Employers may review non-salary benefits, pension contribution matching, or bonus structures to absorb the additional cost.
• Salary sacrifice becomes more attractive: Since salary sacrifice reduces the gross salary on which employer NI is calculated, both employers and employees benefit more from salary sacrifice pension arrangements under the new higher rate.

For practical ways to protect your earnings from these indirect effects, explore our guide on strategies for maximising your take-home pay.

The Employment Allowance: Who Benefits?

The Employment Allowance lets eligible employers reduce their employer NI liability by up to £10,500 per year. Prior to April 2025, the allowance was £5,000 and was not available to employers with a total NI bill exceeding £100,000 in the previous year.

From April 2025, both restrictions were changed: the allowance doubled and the eligibility cap was removed entirely. This means:

• Sole traders and micro businesses (1–4 employees) may see their employer NI bill fully eliminated by the allowance. A business with one employee earning £30,000 would owe £3,750 in employer NI — all covered by the allowance.
• Small businesses (5–15 employees) benefit significantly. The £10,500 offset may neutralise most or all of the additional cost from the rate increase and threshold reduction.
• Large employers receive the same £10,500 allowance but spread across hundreds or thousands of employees, its impact is minimal per head.

To claim the Employment Allowance, employers must be registered for PAYE and must not be a public body, company with a single director as sole employee, or connected to another employer already claiming it. The claim is made through your payroll software at the start of the tax year.

Total Cost of Employment: Why It Matters for You

When thinking about your salary, it is important to understand the total cost of employment — the amount your employer actually spends on you, including employer NI and employer pension contributions. This is the real number that matters in salary negotiations, because it is the employer's true budget for your role.

For an employee earning £50,000 with a 3% employer pension contribution:

• Gross salary: £50,000
• Employer NI (15% above £5,000): £6,750
• Employer pension (3%): £1,500
• Total cost to employer: £58,250

Under the old rates, the same employee would have cost £56,144 — meaning the employer now pays £2,106 more for the same role. Our salary calculator shows the full employer cost breakdown including employer NI and pension.

Impact on Salary Sacrifice Arrangements

The employer NI increase makes salary sacrifice even more valuable than before — for both employers and employees.

When an employee opts into salary sacrifice for pension contributions, their gross salary is contractually reduced. The employer saves NI on the sacrificed amount at the new 15% rate (previously 13.8%). Many employers pass some or all of this saving into the employee's pension pot as an incentive.

Example: An employee earning £45,000 who sacrifices 5% (£2,250):

• Employer NI saving: £2,250 × 15% = £337.50 per year
• Employee NI saving: £2,250 × 8% = £180 per year
• Employee Income Tax saving (basic rate): £2,250 × 20% = £450 per year
• Total combined saving: £967.50 per year

If the employer adds their £337.50 NI saving to the pension, the employee effectively gets a 15% boost to their pension contribution at no extra cost. Higher and additional rate taxpayers save even more. For a deeper dive into how pension contributions reduce your tax bill, see our pension tax relief guide.

What About the National Living Wage?

The National Living Wage (NLW) for workers aged 21 and over increased to £12.21 per hour from April 2025. Combined with the employer NI increase, the total cost of a minimum wage employee working full-time (37.5 hours per week) has risen significantly:

• Annual gross salary: £12.21 × 37.5 × 52 = £23,810
• Employer NI: (£23,810 − £5,000) × 15% = £2,822
• Employer pension (3% above qualifying threshold): ~£460
• Total cost to employer: ~£27,092

This represents a significant increase from 2024/25, where the same role would have cost approximately £24,500 in total. The combined effect of higher wages and higher employer NI is particularly acute in sectors with large numbers of minimum wage workers — retail, hospitality, social care, and logistics. For a detailed breakdown of current wage rates and entitlements, see our National Minimum Wage guide.

How This Affects Salary Negotiations

As a job seeker or employee asking for a raise, understanding employer NI changes gives you a significant advantage in negotiations:

1. Frame your ask in total cost terms: A £3,000 pay rise does not cost your employer £3,000 — it costs £3,000 + 15% employer NI (£450) + 3% pension (£90) = £3,540. Show that you understand this.
2. Propose salary sacrifice alternatives: If a direct pay rise is not possible, suggest increased pension contributions via salary sacrifice. This delivers value to you while actually reducing the employer's NI bill.
3. Be aware of the Employment Allowance: If you work for a small employer, the increased Employment Allowance may mean they have capacity for pay rises that larger competitors cannot match.

Will Employer NI Change Again?

The government has stated that it will not raise employer NI again during the current parliament. However, the Secondary Threshold of £5,000 is frozen — it will not increase with inflation. This means that as wages rise, employers automatically pay NI on a larger proportion of each employee's earnings, creating a “stealth increase” in the effective employer NI burden over time.

Similarly, the employee NI Primary Threshold (£12,570) and Upper Earnings Limit (£50,270) are also frozen until at least April 2028. These fiscal drag mechanisms mean that even without legislation, the tax burden on both employers and employees will gradually increase as nominal wages grow.

Case Study: Tom, a Small Business Owner in Bristol with 8 Employees

Tom runs a digital marketing agency in Bristol with eight full-time employees. Before April 2025, his average employee salary was £32,000, and his total employer NI bill was calculated at 13.8% on earnings above the £9,100 threshold — approximately £25,270 per year across all staff.

After the April 2025 changes (which continue into 2026/27), Tom's employer NI calculation changed dramatically. The rate increased to 15% and the threshold dropped to £5,000. His new annual employer NI cost came to 15% × (£32,000 − £5,000) × 8 = £32,400 — an increase of over £7,100 per year. However, Tom's business qualifies for the increased Employment Allowance of £10,500, bringing his net employer NI cost down to £21,900, which is actually £3,370 less than his pre-April 2025 bill.

For Tom, the Employment Allowance more than offset the rate increase for his business size. But he recognised that each additional hire would cost more in employer NI than before. When recruiting a ninth employee at £35,000, the marginal employer NI cost would be 15% × (£35,000 − £5,000) = £4,500, with no further Employment Allowance available to offset it. Tom decided to restructure his compensation by offering new employees a salary sacrifice pension at 8% instead of 5%, which reduced the NI-able salary and saved both parties money.

Tom also adjusted his salary calculator projections for annual pay reviews. A planned 3% pay rise for all staff (£960 per employee) would cost him not just £7,680 in salary but an additional £1,152 in employer NI — making the true cost of the raise £8,832. Understanding total employment cost is essential for any business owner planning budgets in 2026/27.

See the Full Impact with Our Calculator

Our UK Salary Calculator includes a full employer cost breakdown for 2026/27. It shows the employer NI contribution at the 15% rate with the £5,000 threshold, the employer pension contribution, and the total cost of employment — helping you understand not just what you take home, but what your role actually costs.

Whether you are an employee preparing for a salary review, a business owner budgeting for payroll, or a job seeker evaluating offers, understanding employer NI is essential. Enter your salary and explore the full breakdown.

Disclaimer: This article is for informational purposes only and does not constitute financial or legal advice. Employer NI rates and thresholds are set by HM Treasury and can change in future Budgets. Always verify current rates at GOV.UK. Consult a qualified accountant or tax adviser for business-specific guidance.