Employer NI Increase 2026/27: Cost Per Employee and Mitigation

The April 2025 increase in employer National Insurance contributions was the largest single tax rise in the Autumn Budget 2024, expected to raise over £25 billion annually. For businesses of all sizes -- from sole traders employing a handful of staff to large employers with thousands on the payroll -- the combination of a higher rate (15%, up from 13.8%) and a dramatically lower secondary threshold (£5,000, down from £9,100) has meaningfully increased the cost of employment.

Understanding the Rate and Threshold Changes

Before April 2025, employer NI worked as follows: no employer NI on earnings below £9,100 per year (the secondary threshold), then 13.8% on earnings above that level up to any upper limit.

From 6 April 2025:

• The secondary threshold dropped to £5,000 per year
• The rate increased to 15%

Both changes increase the cost of employment simultaneously. The threshold reduction brings more low-salary earnings into scope; the rate increase means each pound above the threshold costs more.

Calculating the Cost Per Employee

For a standard full-time employee earning £30,000 per year:

Old regime (13.8% on earnings above £9,100): Employer NI = 13.8% x (£30,000 - £9,100) = 13.8% x £20,900 = £2,884

New regime (15% on earnings above £5,000): Employer NI = 15% x (£30,000 - £5,000) = 15% x £25,000 = £3,750

Increase per employee on £30,000: £866 per year

For a minimum wage worker (NLW £12.71/hr, 37.5 hours per week, approximately £24,760/year):

Old regime: 13.8% x (£24,760 - £9,100) = £2,161 New regime: 15% x (£24,760 - £5,000) = £2,964 Increase per NLW worker: £803 per year

For a higher-earning employee on £60,000:

Old regime: 13.8% x (£60,000 - £9,100) = £7,024 New regime: 15% x (£60,000 - £5,000) = £8,250 Increase per employee on £60,000: £1,226 per year

The percentage increase is larger for lower-paid workers (because the threshold reduction has a bigger proportional impact) but the absolute extra cost is greater for higher earners.

Employment Allowance: The Main Relief for Small Employers

Employment Allowance allows eligible employers to offset up to £10,500 of employer NI per year (up from £5,000 in 2024/25). The increase in Employment Allowance was specifically designed to protect smaller employers from the full impact of the rate and threshold changes.

Eligibility conditions:

• Your total employer NI liability for the previous tax year was below £100,000
• You are not a single-director company with no other employees
• You are not a public sector employer (local authorities, NHS trusts, etc. are excluded)
• Connected companies share a single Employment Allowance between them

The allowance offsets employer NI owed -- it cannot create a refund if your employer NI bill is below £10,500. It is claimed through payroll software (RTI submissions) and applied month by month until used up.

For a very small employer with a total employer NI liability of £8,000 per year, the Employment Allowance wipes out the entire bill. For larger employers the allowance is a flat £10,500 offset regardless of the size of the NI bill.

Salary Sacrifice: Double NI Savings

Salary sacrifice pension contributions are one of the most powerful tools for reducing the employer NI burden, because they reduce employer NI and employee NI simultaneously.

When an employee agrees to reduce their salary by £3,000 and the employer directs that £3,000 to a pension scheme instead, neither party pays NI on the sacrificed amount:

• Employer saves 15% x £3,000 = £450 in employer NI
• Employee saves 8% x £3,000 = £240 in employee NI (assuming salary between £12,570 and £50,270)
• Total NI saving per employee: £690 on £3,000 sacrificed

Many employers choose to share the employer NI saving with employees by adding all or part of the £450 employer NI saving into the pension alongside the employee contribution. This enhances the employee's pension pot at no net extra cost to the employer.

Zero Secondary Threshold for Certain Employees

Several categories of employee qualify for the zero-rate secondary threshold, meaning no employer NI is payable regardless of earnings (up to the Upper Secondary Threshold of £50,270):

Employees under 21. No employer NI on earnings up to £50,270 for employees who are under 21 years old. This zero rate was introduced specifically to encourage youth employment.

Apprentices under 25. No employer NI on earnings up to £50,270 for apprentices in a UK government-approved apprenticeship who are under 25.

Veterans in their first year of civilian employment. Employers pay no secondary NI on the first £50,270 of a veteran's salary during their first year in a civilian role.

Freeport employees. Employees who work in a freeport or investment zone site benefit from employer NI relief up to £50,270.

These reliefs can make a substantial difference to employers in sectors with high proportions of young or apprenticed staff.

Impact on Hiring Decisions

The increased employer NI cost is directly visible in the full cost of employment for any new hire. Before April 2025, the employer cost of a £25,000 salary (NI plus salary) was approximately £27,178. From April 2025 it is approximately £28,000, and the new hire may also attract the higher NLW floor.

Many employers have cited the combined NLW and employer NI increases as a significant constraint on hiring plans, particularly in hospitality, retail, social care, and other labour-intensive sectors. The OBR forecast that the changes would reduce employment by around 50,000 jobs relative to the baseline, primarily through slower hiring rather than redundancies.

For businesses planning headcount, it is worth modelling whether alternative structures -- using self-employed contractors for certain roles, increasing hours for existing part-time employees rather than hiring new staff, or deploying more automation -- offer a better cost outcome. Self-employed workers pay their own NI; employers pay no secondary NI on genuine contractor relationships.

Impact on Benefits in Kind

Class 1A employer NI is charged on most taxable benefits in kind (company cars, private medical insurance, beneficial loans, etc.) at the same rate as the main Class 1 secondary rate. From April 2025, Class 1A is therefore 15%, up from 13.8%. The cost of providing benefits in kind has risen in line with the employer NI rate increase.

For employers with large benefit-in-kind programmes (particularly company car fleets), this is an additional cost to factor into fleet policy reviews. Electric vehicles as company cars attract a very low benefit-in-kind rate (currently 3% of list price for 2025/26) and employer Class 1A is calculated on that low value, making EVs an attractive option for reducing both employee income tax on benefits and employer Class 1A NI.

The April 2025 employer NI increases represent a permanent uplift in the cost of employment in the UK. Salary sacrifice pension arrangements, Employment Allowance claims, and thoughtful use of zero-rate categories (under-21s, apprentices, veterans) are the most effective tools for managing this cost -- and all three can be implemented without reducing employee take-home pay or benefits.