Payroll

What is Employer's National Insurance?

Employer's NI is the National Insurance contribution employers must pay on top of employee wages - an additional employment cost.

Current Rate (2025/26)

15% on earnings above £5,000/year (2025/26)

Example

Employee earns £40,000. Employer pays 15% on £35,000 (above £5,000 threshold) = £5,250 employer's NI.

Key Dates

Paid monthly along with PAYE

How Employer's National Insurance Works in Practice

Employer's National Insurance (also called secondary Class 1 NICs) is a payroll tax that employers must pay on top of employee wages. Unlike employee NI, which is deducted from the employee's pay, employer's NI is an additional cost borne entirely by the company. It does not reduce the employee's take-home pay.

From April 2025, the employer's NI rate is 15% on all employee earnings above the secondary threshold of £5,000 per year. This was increased from 13.8% (on earnings above £9,100) as part of the October 2024 Budget measures. The reduced threshold and increased rate mean employer's NI costs have risen significantly for most businesses.

Employer's NI is a fully deductible business expense for Corporation Tax purposes. This means it reduces your taxable profit. For example, if your employer's NI bill is £10,000, this saves you £2,500 in Corporation Tax (at 25%). However, the cost still needs to be managed as it significantly increases the true cost of employing staff.

For director-shareholders of small companies, employer's NI is a key factor in the optimal salary/dividend split. Many accountants recommend paying a director's salary at or just below the NI thresholds to minimise the employer's NI cost while maximising Corporation Tax relief. The Employment Allowance (£10,500 in 2025/26) can offset some or all of this cost for qualifying employers.

Step by Step

Each time you run payroll, your payroll software calculates the employer's NI due on each employee's earnings above the secondary threshold (£5,000 per year, or £417 per month). The 15% rate applies to all earnings above this threshold with no upper limit.

The employer's NI is not deducted from the employee - it is an additional cost your company must pay. You report it to HMRC through your Full Payment Submission (FPS) each pay period. The total employer's NI, along with employee income tax and employee NI deductions, must be paid to HMRC by the 22nd of the following month (if paying electronically) or the 19th (if paying by post).

Some categories of employees attract reduced or zero employer's NI. Employees under 21 and apprentices under 25 benefit from a £0 employer's NI rate on earnings up to £50,270 (the upper secondary threshold). Veterans in their first year of civilian employment also benefit from relief. These reliefs are applied through specific NI category letters in your payroll software.

Practical Tips

When budgeting for new hires, add 15% on top of the salary above £5,000 to calculate the true employment cost, plus pension contributions (minimum 3% employer contribution)
Claim Employment Allowance at the start of each tax year through your payroll software - it is not applied automatically and you must actively claim it
Review whether salary sacrifice arrangements for pensions could save your company employer's NI - the savings can be significant for higher earners
For director-shareholders, work with your accountant to set the optimal salary level considering the new £5,000 threshold and 15% rate for 2025/26

Common Mistakes to Avoid

Forgetting to budget for employer's NI when calculating the total cost of hiring - a £40,000 salary costs the company around £45,250 after employer's NI (before Employment Allowance)
Not claiming Employment Allowance when eligible, which can save up to £10,500 per year - check eligibility every April as rules change
Failing to use the correct NI category letters for employees under 21 (category M) or apprentices under 25 (category H), which results in overpaying employer's NI
Not factoring employer's NI into the salary vs dividend decision for director-shareholders, where a small salary plus dividends is usually more tax-efficient

Frequently Asked Questions

What is the employer's NI rate for 2025/26?

The rate is 15% on all employee earnings above the secondary threshold of £5,000 per year (£417 per month). This increased from 13.8% (on earnings above £9,100) from April 2025 following the October 2024 Budget.

Do I pay employer's NI on director dividends?

No. Employer's NI is only payable on employment earnings (salary and wages). Dividends are distributions of profit, not employment income, so they do not attract employer's NI. This is one reason why the salary/dividend split is tax-efficient.

Can I reduce my employer's NI bill?

Yes. Claim Employment Allowance if eligible (up to £10,500 off your bill). Use the correct NI category letters for young employees and apprentices. Consider salary sacrifice schemes for pension contributions, which reduce the salary on which employer's NI is calculated.

Is employer's NI tax-deductible?

Yes. Employer's NI is a fully deductible business expense for Corporation Tax purposes. This means the net cost after CT relief is lower. For a company paying 25% Corporation Tax, £10,000 of employer's NI effectively costs £7,500 after the tax deduction.

Do I pay employer's NI on pension contributions?

No. Employer pension contributions are exempt from employer's NI. This is why salary sacrifice into a pension is attractive for both employer and employee - it reduces the salary on which NI is calculated while increasing the pension contribution.

Source: HMRC National Insurance Manual NIM01000 - Class 1 NICs: employer's contributions; HMRC rates and thresholds for employers 2025/26

Related Terms

National Insurance

National Insurance (NI) is a tax on earnings that funds state benefits like the State Pension and NHS. Both employees and employers pay it.

PAYE (Pay As You Earn)

PAYE is the system employers use to deduct Income Tax and National Insurance from employee wages before paying them.

Employment Allowance

Employment Allowance reduces your employer's NI bill by up to £10,500 per year (2025/26). Most small employers qualify.

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