Employer NI Increase April 2025: What Changed and What It Means for Workers

What exactly changed in April 2025

The Autumn 2024 Budget announced the largest increase to employer National Insurance in decades, taking effect from 6 April 2025. Two changes combined to produce a significant cost increase for almost every employer in the UK:

Change 1 — The rate: Employer NI (Class 1 secondary contributions) rose from 13.8% to 15%. This is the percentage of an employee's earnings above the secondary threshold that the employer pays to HMRC. The employee's own NI contributions were not affected.

Change 2 — The secondary threshold: The earnings level at which employer NI begins fell from £9,100 per year (£175/week) to £5,000 per year (£96.15/week). This means employers now start paying NI earlier on each salary, widening the taxable band by £4,100.

Partial offset — Employment Allowance: To cushion the blow for small businesses, the Employment Allowance — which lets eligible employers reduce their annual NI bill — was simultaneously doubled from £5,000 to £10,500. This fully offsets the NI increase for businesses with modest payroll costs, but larger employers with many staff receive no benefit beyond the flat allowance.

How to calculate the actual extra cost

The increase hits each employee on two dimensions simultaneously: a higher rate and a lower threshold. For any given salary, the new cost calculation is:

Old formula: (Salary − £9,100) × 13.8% New formula: (Salary − £5,000) × 15%

The increase is not proportionally the same at all salary levels — lower-paid workers generate a higher percentage increase in NI costs because the threshold reduction (£4,100) represents a bigger share of their qualifying earnings.

Worked example: small business with 5 staff on £30,000 each

Consider a small retail business with 5 employees all earning £30,000 per year. Here is the employer NI picture before and after April 2025:

Before April 2025 (13.8% above £9,100):

• Per employee: (£30,000 − £9,100) × 13.8% = £20,900 × 13.8% = £2,884
• 5 employees: £2,884 × 5 = £14,420 total employer NI
• Less Employment Allowance: −£5,000
• Net employer NI: £9,420

After April 2025 (15% above £5,000):

• Per employee: (£30,000 − £5,000) × 15% = £25,000 × 15% = £3,750
• 5 employees: £3,750 × 5 = £18,750 total employer NI
• Less Employment Allowance: −£10,500
• Net employer NI: £8,250

In this specific case, the doubling of the Employment Allowance more than compensates for the NI rate increase. The business actually pays £1,170 less in net employer NI than before. This is the policy intent — small employers with modest total payrolls are protected or even benefit slightly.

Now change the scenario: a business with 15 employees all earning £30,000:

• New gross NI: £3,750 × 15 = £56,250
• Less Employment Allowance: −£10,500
• Net employer NI: £45,750

Before: (£14,420/5 × 15) − £5,000 = £43,260 − £5,000 = £38,260

This employer pays £7,490 more per year — a 19.6% increase in their employer NI bill.

Why your pay rise may be smaller than you expected

The link between employer NI and employee pay is not immediate or obvious, but it is real. When employers face a higher cost per employee, they have a limited set of responses:

1. Absorb the cost — reduce profit margins. Possible for profitable firms, unsustainable long-term.
2. Raise prices — pass costs to consumers. Inflationary, and limited by competitive pressure.
3. Reduce pay growth — offer smaller wage increases than they would otherwise have. This is the most common and least visible response.
4. Reduce headcount — hire fewer people or replace leavers with technology. Especially likely for roles paying close to the National Living Wage.
5. Reduce hours — use zero-hours contracts or cut overtime to manage total payroll costs.
6. Outsource — use contractors or agency workers. Engaging a genuine self-employed contractor means no employer NI on their earnings.

For employees, the practical consequence is that wage negotiations in 2025/26 are happening against a backdrop of employers already absorbing several hundred pounds more per employee per year. A business that would previously have offered a 4% pay rise may offer 3% if the NI increase has consumed the equivalent.

Salary sacrifice: a rare win-win

One legitimate way to reduce the employer NI burden — with benefits for employees too — is salary sacrifice. Under a salary sacrifice arrangement, the employee agrees to a lower gross salary in exchange for a non-cash benefit, most commonly a pension contribution.

Because salary sacrifice reduces gross pay, it reduces the earnings on which employer NI is calculated.

Example: £40,000 salary, £2,000 pension salary sacrifice

• Employer NI before sacrifice: (£40,000 − £5,000) × 15% = £35,000 × 15% = £5,250
• Employer NI after sacrifice: (£38,000 − £5,000) × 15% = £33,000 × 15% = £4,950
• Employer NI saving: £300 per year

Many employers pass this saving to the employee's pension pot as an enhanced contribution — effectively giving the employee an extra benefit funded entirely by the NI saving. Some employers offer to split the saving 50/50.

Other common salary sacrifice benefits include:

• Cycle to Work schemes — up to ~£1,000 of equipment
• Electric Vehicle salary sacrifice — significant for higher earners
• Childcare (employer-contracted nursery places)

Who is exempt from employer NI?

Not all employment is subject to the full 15% employer NI rate. The zero-rate applies in several circumstances:

Under-21s: No employer NI on earnings up to the Upper Secondary Threshold (£50,270 in 2026/27). This makes young workers significantly cheaper to employ on lower wages.

Apprentices under 25: Same zero-rate applies on earnings up to the Apprentice Upper Secondary Threshold (£50,270). A deliberate policy to encourage apprenticeship hiring.

Veterans: No employer NI in the first year of civilian employment after leaving the armed forces (on earnings up to £50,270).

Freeport and investment zone employees: Zero employer NI for qualifying new employees in designated areas, up to £25,000 of earnings.

For businesses with a mix of ages and employment types, the effective employer NI rate across the total payroll can be considerably lower than the headline 15%.

Impact on hiring decisions and business structure

The NI increase has measurably shifted employer behaviour in several areas:

Part-time and flexible work: The reduced secondary threshold (£5,000) means that part-time workers on modest hours now trigger employer NI sooner. A worker earning £6,000/year (approximately 8 hours/week at National Living Wage) now costs the employer £150 in NI (15% × £1,000 above threshold) vs zero previously. This makes very-low-hours employment fractionally less attractive.

National Living Wage interaction: The NLW rose to £12.21/hour from April 2025. A full-time NLW worker earns approximately £23,600/year, generating employer NI of (£23,600 − £5,000) × 15% = £2,790/year. Combined with the NLW increase, the total employment cost rise for low-wage businesses has been substantial.

Outsourcing and self-employment: Engaging genuinely self-employed workers means no employer NI, no holiday pay, no sick pay, and no employer pension contributions. The NI increase adds to the pre-existing incentive for businesses to engage workers outside employment. HMRC continues to scrutinise IR35 and employment status compliance closely.

What employees can do

While the employer NI increase is primarily a cost to employers, employees can take some actions to manage their total compensation:

Ask about salary sacrifice: If your employer does not already offer pension salary sacrifice, ask HR or payroll whether it is available. Every £1,000 of salary sacrifice saves your employer £150 in NI — some employers will share this saving with you.

Understand your total remuneration: When negotiating, consider the full package including pension contributions, NI savings from sacrifice, and any exempt benefits. An employer who cannot offer a higher salary due to NI costs may be able to offer an enhanced pension contribution instead.

Consider pension contribution timing: If your employer is offering to match salary sacrifice NI savings into your pension, increasing your sacrifice in 2026/27 locks in contributions at the current 15% NI saving rate for as long as it applies.

Summary of key rates and thresholds 2026/27

Sources

• HMRC: National Insurance rates and categories
• HM Treasury: Autumn Budget 2024
• OBR: Economic and Fiscal Outlook, October 2024
• HMRC: Employment Allowance
• Low Pay Commission: National Living Wage rates 2025