Employer National Insurance April 2025: How the Rate Rise Affects Your Pay and Job Security

What changed in April 2025

The October 2024 Autumn Budget made two simultaneous changes to employer National Insurance contributions, both taking effect from 6 April 2025:

Change 1: Rate increase

• Old rate: 13.8% (had been unchanged since 2011)
• New rate: 15.0%
• Change: +1.2 percentage points

Change 2: Secondary threshold reduction

• Old secondary threshold: £9,100 per year (£758/month)
• New secondary threshold: £5,000 per year (£417/month)
• Change: employer NI now applies to a wider band of earnings

These two changes work in the same direction — both increase the employer NI cost per employee. The rate rise affects all workers above the threshold; the threshold reduction particularly affects lower-paid workers, because employer NI now applies from £5,000 rather than £9,100.

The Employment Allowance offset:

To cushion smaller businesses, the Employment Allowance was raised from £5,000 to £10,500 from April 2025. This is a credit that eligible employers can claim against their employer NI liability. Employers with fewer than a certain number of employees and an annual employer NI bill below £100,000 typically qualify.

For an employer with five staff and a total employer NI bill of £12,000, the Employment Allowance reduces this to £1,500. Without the allowance increase (from £5,000 to £10,500), the same employer would have faced paying £7,000 in employer NI.

The cost table: old vs new rates at key salaries

The table below compares employer NI costs before April 2025 and from April 2025/2026/27, at common salary levels.

The pattern is consistent: every employee costs their employer roughly £700–£1,100 more in employer NI per year compared to pre-April 2025. For a 10-person business paying average salaries of £30,000, the total extra annual cost is £8,660 — before any other cost increases.

What this means for total employment cost

When employers calculate the cost of employing someone, they consider the full cost including employer NI, pension contributions, holiday pay, and any benefits. Employer NI is a substantial component.

Full employment cost for a £30,000 employee in 2026/27:

The employee receives a take-home pay of approximately £23,100 (after income tax and employee NI). The employer pays £34,488. The gap between what the employer pays and what the employee receives — £11,388 — goes to HMRC in various forms of tax.

This ratio helps explain why salary increases are harder to justify post-April 2025: a £1 pay rise costs the employer £1.15 (including 15% employer NI on the increase), not £1.

Impact on small business hiring decisions

The Employment Allowance helps small businesses, but it does not eliminate the impact for businesses that already exceeded the old £5,000 allowance threshold.

A small business case study:

Thornton & Associates is a small accountancy firm with 4 full-time staff earning an average of £28,000 each. Their employer NI bill before and after April 2025:

In this case, the increased Employment Allowance more than offsets the rate and threshold changes — the firm actually pays less net employer NI. This was the design intent: protect small businesses while raising revenue from larger employers.

A medium business case study:

A retail company with 30 staff averaging £24,000 salary, well above the Employment Allowance threshold:

For this business, £23,820 extra per year is a material cost increase — equivalent to hiring an additional part-time employee, funding a business investment, or providing a 3% pay rise to all staff. The OBR estimated this kind of cost pressure would result in approximately 50,000 fewer jobs being created or maintained over the medium term, as businesses respond to the higher cost floor.

The salary sacrifice opportunity: a silver lining

The employer NI rise has made salary sacrifice schemes more financially attractive for employers — and this benefit can be passed to employees.

How salary sacrifice saves employer NI:

When an employee agrees to exchange £1,000 of salary for a pension contribution of £1,000, the employer:

• Pays £1,000 less in salary (so £150 less in employer NI at 15%)
• Pays £1,000 as an employer pension contribution (no NI)
• Net saving: £150 in employer NI

At the old 13.8% rate, the same £1,000 sacrifice saved the employer £138. The rate rise increases the saving.

Schemes that benefit from salary sacrifice:

The employer NI sharing model:

Some employers — particularly those who have recently introduced or expanded salary sacrifice pension schemes — share the employer NI saving with the employee in the form of an enhanced pension contribution. If your employer saves £300/year in NI from your pension sacrifice, they might contribute an extra £150 to your pension on top of their standard contribution.

If your employer does not currently share NI savings, ask HR whether this is under consideration — post-April 2025, the incentive for employers to do so is greater.

How this affects salary negotiations

Employer NI is invisible to employees — it does not appear on a payslip. But it is very visible to employers and HR departments, particularly since April 2025.

The practical effects on pay:

• Entry-level hiring: For roles paying £18,000–£25,000, the employer NI increase is proportionally highest (the threshold reduction from £9,100 to £5,000 hits lower salaries hardest as a percentage). Employers may be more cautious about entry-level hires or may favour part-time arrangements.
• Pay reviews: An across-the-board 3% pay rise costs the employer 3% × 1.15 (including NI uplift) = 3.45%. Budget for pay reviews must account for this multiplier.
• Salary vs benefits trade-offs: Employers have more incentive to offer salary sacrifice benefits (which save NI) rather than cash salary increases (which attract NI). Employees in salary negotiations may find more flexibility on non-cash benefits.

For employees: When benchmarking your salary against the market, note that your total employment cost to your employer is roughly 15% above your gross salary. If you are worth £35,000 in employment cost to the market, your gross salary offer from a new employer will be closer to £30,000.

The broader economic context

The employer NI changes were the single largest revenue-raising measure in the October 2024 Budget, estimated by HMRC to raise approximately £25 billion per year by 2028/29.

Business groups (CBI, BCC, FSB) warned that the combination of employer NI increases and the National Minimum Wage rise to £12.21/hour from April 2025 created a significant cost shock for labour-intensive sectors including retail, hospitality, and social care.

The social care sector in particular faces a structural problem: local authorities pay fixed rates for care placements, and care providers cannot easily pass on higher employment costs through price increases. This has contributed to ongoing provider closures and workforce pressures in the sector.

Looking ahead: The Spring Budget 2026 confirmed no further changes to employer NI rates or thresholds until at least 2027/28. Whether the secondary threshold will be raised (reducing the cost impact) in future is unknown. The employment allowance increase has provided meaningful relief for the smallest businesses but left medium and large employers absorbing the full impact.

What you can do as an employee

While employer NI is primarily a cost borne by your employer, there are practical steps employees can take:

1. Enrol in salary sacrifice pension schemes if available — your employer saves NI and may share that saving with you
2. Consider electric vehicle schemes if your employer offers them — at 15% employer NI, the economics are strong for employers
3. Ask about the Employment Allowance status of your employer — small businesses who newly benefit from the expanded EA have a healthier budget for pay increases
4. Factor total employment cost into salary negotiations — knowing that a £2,000 pay rise costs your employer £2,300 (with NI) gives you context on why large rises face resistance

The April 2025 changes are now embedded in the employment cost structure and are unlikely to be reversed in the near term. Understanding their mechanics helps both employees and employers navigate the environment they create.