From 6 April 2025, employer National Insurance Contributions rose from 13.8% to 15%, and the secondary threshold — the point at which employer NIC starts — dropped from £9,100 to £5,000 per year. For many businesses, this represents the largest single increase in employment costs in years.
This article walks through the real numbers, what the changes mean for your payroll budget, and how the Employment Allowance affects your position.
What Changed From April 2025
| Factor | 2024/25 | 2025/26 |
|---|---|---|
| Employer NIC rate | 13.8% | 15% |
| Secondary threshold | £9,100/year | £5,000/year |
| Employment Allowance | £5,000 | £10,500 |
The increase in the Employment Allowance from £5,000 to £10,500 partially offsets the rate and threshold changes for smaller employers — but for many businesses the net effect is still a significant increase in costs.
The True Cost: Worked Examples
Full-time employee on £30,000 salary
| 2024/25 | 2025/26 | Difference | |
|---|---|---|---|
| Employer NIC | £2,889 | £3,750 | +£861 per employee |
Calculation: 2024/25 = (£30,000 – £9,100) × 13.8% = £2,882. 2025/26 = (£30,000 – £5,000) × 15% = £3,750.
Part-time employee on £15,000 salary
| 2024/25 | 2025/26 | Difference | |
|---|---|---|---|
| Employer NIC | £826 | £1,500 | +£674 per employee |
Calculation: 2024/25 = (£15,000 – £9,100) × 13.8% = £814. 2025/26 = (£15,000 – £5,000) × 15% = £1,500.
The lower secondary threshold hits lower-paid and part-time workers proportionally harder — the threshold has nearly halved, meaning employer NIC now starts much earlier in the earnings range.
The Employment Allowance: Who Qualifies and What It's Worth
The Employment Allowance allows eligible employers to reduce their employer NIC bill by up to £10,500 per year (2025/26). This is a significant increase from the previous £5,000 allowance and provides meaningful relief for small employers.
You qualify if your employer NIC bill was less than £100,000 in the previous tax year. However, there are important exclusions:
- Companies where the only employee is the director/owner (sole director companies with no other employees) do not qualify
- Public bodies and companies connected to public bodies do not qualify
- Domestic employers (e.g. nannies, carers employed personally) do qualify
The allowance is claimed through your payroll software and applied against your employer NIC liability throughout the year.
How to Update Your Budget and Payroll
If you have not already recalculated your employment costs for 2025/26, here is what to review:
- Annual payroll budget: Recalculate employer NIC for every employee using the new 15% rate and £5,000 threshold. For most businesses, total employer NIC will have increased by £500–£1,500 per full-time employee
- Employment Allowance: Confirm you have claimed it in your payroll software if you qualify — many businesses miss this
- Director salary: Review whether your director salary level remains optimal — see our separate article on salary vs dividend planning
- New hires: Factor the true cost of employment (salary + 15% employer NIC above £5,000 + auto-enrolment pension contributions) into any hiring decisions
- Year-end provisions: Ensure your management accounts and year-end accounts reflect the increased NIC liability correctly
National Minimum Wage: Check Your Rates
The National Living Wage rose to £12.71/hr from 1 April 2026. If any of your employees are paid at or near the minimum wage, ensure your payroll has been updated. Underpayment of minimum wage carries significant HMRC penalties and can result in public naming.
| Category | Rate from 1 April 2026 |
|---|---|
| National Living Wage (age 21+) | £12.71/hr |
| 18–20 National Minimum Wage | £10.85/hr |
| 16–17 & Apprentice rate | £8.00/hr |
National minimum wage rates change on 1 April each year. Always check current rates at gov.uk/national-minimum-wage-rates before processing payroll.
General information only. This article provides general guidance on UK tax and accounting matters and reflects our understanding of legislation and HMRC guidance at the time of publication. Tax rules, rates, and thresholds change frequently. Nothing in this article constitutes personalised tax or financial advice. Always seek advice specific to your circumstances from a qualified accountant before taking action. Ledgertech Accountants Ltd accepts no liability for any loss arising from reliance on this content.
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