Employer NI at 15% — One Year On

What Changed in April 2025

On 6 April 2025, two changes hit employer payroll costs simultaneously:

• Employer NI rate rose from 13.8% to 15% — a 1.2 percentage point increase
• Secondary threshold dropped from £9,100 to £5,000 — meaning NI kicks in £4,100 earlier

The government described this as a single fiscal event, but it was effectively a double hit. The rate went up and the starting point went down. For employers, the combination was significantly more expensive than either change alone.

One year on, we can now see the real-world impact rather than relying on forecasts.

The Real Cost Per Employee

The best way to understand the impact is to compare the employer NI bill for a single employee at various salary levels, before and after the change.

Employee Earning £25,000

Employee Earning £30,000

Employee Earning National Living Wage (Full-Time)

A full-time worker on the 2025/26 National Living Wage of £12.21/hour earns approximately £23,861 per year.

Even at the lowest legal wage, employers paid nearly £800 more per employee. For a small business with five staff on similar wages, that is roughly £4,000 in additional annual costs — equivalent to hiring another part-time worker.

The Pattern

Across all salary levels, the increase works out to approximately £615 to £900 per employee. The fixed element (threshold drop from £9,100 to £5,000) adds £615 to every employee's NI bill, regardless of salary. The rate increase (1.2 percentage points) then adds more on top, proportional to earnings.

Did Employment Allowance Offset It?

The government doubled the Employment Allowance from £5,000 to £10,500 at the same time, and removed the cap so that companies of any size could claim it (provided their NI bill was under £100,000 in the prior year).

For Very Small Employers: Yes, Mostly

A company with 2-3 lower-paid employees may have an employer NI bill that is entirely covered by the £10,500 allowance. In this case, the rate increase costs nothing in practice.

Example: Company with 2 employees on £25,000 each

For this company, the increased Employment Allowance more than covers the increased NI.

For Medium Employers: Partially

A company with 10 employees on £30,000 each:

The doubled allowance absorbs £5,500 of the £8,660 gross increase, leaving a net increase of £3,160. Meaningful, but manageable.

For Sole Directors: Not at All

As discussed in the optimal director's salary guide, a sole director with no other employees cannot claim Employment Allowance. They bear the full cost of the NI increase on their own salary.

How Businesses Actually Responded

One year of data reveals clear patterns in how small companies adapted to the higher costs.

Salary Restraint

Many companies held salaries flat or offered below-inflation pay rises to absorb the NI increase. With the employer paying an extra £615 to £900 per employee, that money had to come from somewhere. For companies already operating on thin margins, it came from the wage budget.

Slower Hiring

The marginal cost of an additional employee rose significantly. Before April 2025, the first £9,100 of a new hire's salary was NI-free. Now only the first £5,000 is exempt. This made companies more cautious about expanding headcount, particularly for lower-paid roles where the NI increase represented a larger percentage of total employment cost.

Contractor Use

Some businesses shifted work to self-employed contractors to avoid employer NI entirely. This carries IR35 risk if the working relationship looks like employment, and HMRC has been clear that it will scrutinise arrangements that changed specifically to avoid the NI increase.

Price Increases

Service businesses in particular passed the cost through to customers. An employer NI increase is a direct addition to the cost of labour, and labour-intensive businesses had limited options for absorbing it.

The Director-Specific Impact

For limited company directors, the change affected the salary vs dividends calculation directly.

A director paying themselves £12,570 (the personal allowance) saw their employer NI go from:

• 2024/25: (£12,570 - £9,100) x 13.8% = £479
• 2025/26: (£12,570 - £5,000) x 15% = £1,136

That is a £657 increase in the cost of extracting the same salary. The corporation tax deduction on the NI partially offsets this (saving £164 more), but the net cost still rose by about £493.

This prompted some advisers to recommend dropping the director's salary to £5,000 to avoid employer NI entirely. However, as our salary analysis shows, the maths still favour £12,570 for most directors because the personal allowance is too valuable to waste.

What Comes Next

The employer NI rate and threshold are not changing in April 2026. The 15% rate and £5,000 threshold are here for the foreseeable future. The government has signalled no plans to reverse either element.

What is changing in 2026/27 is the dividend tax rate rising to 10.75%, which makes the overall picture of extracting money from a company slightly more expensive from every angle — salary costs more in NI, dividends cost more in tax.

The Employment Allowance remains at £10,500 with the same qualification rules. If you have not yet claimed it (or if you recently hired your first employee beyond yourself), check your eligibility — it can save up to £10,500 off your annual NI bill.

Key Dates

• 6 April 2025 — Employer NI rose to 15%, threshold dropped to £5,000 (already in effect)
• 6 April 2026 — Rates and thresholds unchanged; dividend tax rises to 10.75%
• April 2026 — Review Employment Allowance eligibility for the new tax year

What to Do Now

1. Review your payroll costs — Compare your 2024/25 and 2025/26 employer NI bills to understand the actual impact on your business.
2. Claim Employment Allowance — If you have any employees beyond a sole director, make sure you are claiming the full £10,500. This is not automatic — you must claim it through your payroll software.
3. Reassess hiring plans — Factor the true cost of employer NI into any hiring decisions. A £25,000 salary now costs the company £28,000 with employer NI (before Employment Allowance).
4. Check your director's salary — The optimal salary calculation has changed. Make sure yours is still set at the most efficient level.
5. Consider timing of bonuses — If you pay annual bonuses, the employer NI on those payments is now 15% rather than 13.8%.

AccountsOS calculates your employer NI automatically and tracks Employment Allowance claims through the payroll module, so you always know the true cost of your workforce.

Frequently Asked Questions

How much extra is employer NI costing per employee in 2025/26?

The increase works out to approximately £615 to £900 per employee depending on salary level. The threshold drop from £9,100 to £5,000 adds a flat £615 to every employee's NI bill, and the rate increase from 13.8% to 15% adds more on top in proportion to earnings. For an employee earning £30,000, the total increase is about £866 per year.

Does Employment Allowance fully offset the NI increase for small companies?

For very small companies (2-3 lower-paid employees), yes — the doubled allowance of £10,500 often covers the entire employer NI bill. For companies with 5+ employees or higher salaries, it offsets a portion but not all of the increase. Sole director companies without other employees cannot claim it at all.

Is the employer NI rate changing again in April 2026?

No. The 15% rate and £5,000 secondary threshold remain unchanged for 2026/27. The government has not announced any plans to change either figure. The main payroll-related change in April 2026 is the National Living Wage rising to £12.71, which will push up employer NI costs slightly for minimum-wage employees.

Can I reduce employer NI by paying myself more in dividends and less in salary?

As a director, yes — you can reduce your salary to lower your employer NI bill. However, there is a balance to strike. Reducing your salary below the personal allowance (£12,570) wastes valuable tax-free income. Our salary optimisation guide walks through the exact calculations for 2026/27.