From April 2025, employer National Insurance contributions rose from 13.8% to 15%, while the secondary threshold dropped from £9,100 to £5,000 per year. These two changes together increased the cost of employing staff across nearly every sector. This article examines how the combined effect plays out for businesses of different sizes, what it means for payroll planning, and what further adjustments are expected as the 2026 tax year approaches.
Key takeaways
- The employer NI rate rose from 13.8% to 15% in April 2025.
- The secondary threshold dropped from £9,100 to £5,000, widening the liable earnings base.
- A £30,000 employee now costs roughly £975 more in employer NI annually.
- Employment Allowance rose to £10,500, with the £100,000 eligibility cap removed entirely.
- Hospitality, retail, and social care face the steepest impact due to lower-wage, part-time workforces.
- Salary sacrifice arrangements reduce employer NI by lowering pensionable earnings below the threshold.
- No confirmed rate changes are scheduled for April 2026; the 15% rate is expected to hold.
What Changed in April 2025: The Rate and Threshold Shifts
Source: HMRC NI rates and thresholds; calculations based on 13.8% rate/£9,100 threshold (2024/25) vs 15% rate/£5,000 threshold (2025/26)
Review your payroll software settings before processing April 2025 pay runs. The employer National Insurance rate and secondary threshold both shifted simultaneously, compounding the cost impact for most employers.
The employer NI rate rose from 13.8% to 15%, a 1.2 percentage point increase. At the same time, the secondary threshold dropped from £9,100 to £5,000 per year. That combination means employers now start paying contributions on a larger portion of each employee’s earnings, and at a higher rate on all of it.
For a full-time worker earning £30,000, the annual employer NI liability increased by roughly £900 compared with 2024/25 figures, based on the rate and threshold changes alone. The HMRC Employment Allowance increased to £10,500 to partially offset costs for smaller employers, though businesses with a single director on payroll remain ineligible. Employers with multiple staff on modest salaries will feel the threshold reduction most acutely, since contributions now begin £4,100 earlier in the earnings year than they did in 2024/25.
How the Secondary Threshold Reduction Affects Payroll Costs
| Parameter | 2024/25 | 2025/26 |
|---|---|---|
| Employer NI Rate | 13.8% | 15% |
| Secondary Threshold (annual) | £9,100 | £5,000 |
| Employment Allowance | £5,000 | £10,500 |
| £100,000 NI Liability Cap for Allowance | Yes | Removed |
| Additional NI on earnings between £5,000–£9,100 | £0 | Up to £615 per worker |
Dropping the secondary threshold from £9,100 to £5,000 pulls more of each worker’s wage into the National Insurance calculation. For a full-time employee earning £25,000, the liable earnings base rises by £4,100, adding £615 in employer NI annually at the new 15% rate. Businesses with stable, full-time headcounts will feel this immediately in their monthly payroll runs.
The effect is steeper for employers with large numbers of part-time or lower-paid workers. A worker earning £12,000 previously generated modest NI liability; that same worker now contributes £1,050 in annual employer NI. Retail, hospitality, and social care businesses face the sharpest aggregate increases because their workforce profiles skew heavily towards sub-£15,000 annual earnings and variable hours.
The Employment Allowance rise from £5,000 to £10,500 offsets some exposure for smaller employers, but larger payrolls absorb the full compounded impact without any equivalent relief. Modelling the threshold change separately from the rate change in payroll forecasts identifies which workforce segments drive the cost pressure most, giving finance teams a clearer basis for budgeting headcount decisions in the year ahead.
Employment Allowance in 2025 and 2026: Updated Eligibility and Limits
From April 2025, the £100,000 secondary NI liability cap for Employment Allowance was removed entirely. Any employer whose secondary Class 1 NI liability fell below that threshold in the previous tax year can now claim, provided they meet the other qualifying conditions.
The allowance rose from £5,000 to £10,500 per year. A business with an £18,000 annual employer NI bill would reduce its net liability to £7,500, partially absorbing costs generated by the lower secondary threshold.
Eligibility excludes companies where the sole employee is also a director, public bodies, and employers who have exceeded the de minimis state aid limit. Connected companies must share a single allowance rather than each claiming separately. Qualifying conditions are assessed annually, so eligibility must be confirmed each tax year. Claims are submitted through payroll software or HMRC’s Basic PAYE Tools.
Calculating the Real Cost Increase Per Employee
For a full-time employee earning £30,000, the combined effect of the rate rise and threshold reduction adds roughly £975 to the annual employer NI bill compared with 2024/25. To calculate the increase for any employee, subtract £5,000 from their annual salary, multiply by 15%, then compare against the 2024/25 figures: salary minus £9,100, multiplied by 13.8%.
Workers earning between £5,000 and £9,100 now generate employer NI where none existed before, which can materially shift payroll costs in sectors reliant on part-time hours. Retail, hospitality, and care providers with large numbers of part-time staff are likely to feel this change most acutely. Reviewing service agreements for contractors and freelancers also helps clarify which engagements carry employer NI obligations.
Aggregate per-employee figures across your workforce to identify the total annual uplift before applying any Employment Allowance offset. That gross number shows true exposure before reliefs are factored in and provides the most reliable input for budget forecasting. Running this calculation in April, rather than waiting until year-end, gives payroll teams enough lead time to adjust cash flow plans accordingly.
Sectors Facing the Steepest Employer NI Burden
Hospitality, social care, and retail absorb the largest share of the 2025 NI changes because their workforces skew towards part-time, lower-wage contracts, exactly the profile hit hardest by the threshold drop to £5,000. A worker on 20 hours per week at the National Living Wage now sits above the new secondary threshold, generating employer NI where none applied before April 2025.
Social care providers face a compounded problem: pay rates rose following the 2024 and 2025 National Living Wage uplifts, yet most operate on local authority contracts with fixed fee structures that do not adjust for employer cost increases. The NI liability climbs while contract income stays flat.
Hospitality businesses running large numbers of part-time staff now carry a liability on almost every worker. Retailers with seasonal hiring face similar exposure, as temporary contracts that previously fell beneath the threshold now cross it, making short-term headcount increases meaningfully more expensive. British Retail Consortium analysis ahead of April 2025 flagged this as a material cost pressure for mid-sized chains on thin margins. Capital-intensive sectors with smaller, higher-paid workforces feel the rate increase but are less affected by the threshold shift.
How Businesses Are Adjusting Hiring and Pay Structures
Spreading headcount increases across self-employed contractors or agency workers reduces employer NI exposure, since neither arrangement triggers secondary Class 1 contributions. Contractors typically charge higher day rates and agencies add their own margin, so this route only makes sense when hours are variable or short-term.
Salary sacrifice has become more attractive since April 2025. Routing pension contributions, cycle-to-work schemes, or electric vehicle leasing through salary sacrifice reduces the employee’s gross pay and lowers the employer’s NI liability in step. For a workforce of 50 employees each sacrificing £1,000 annually, the employer saves £750 at the 15% rate.
Reviewing contract types and benefit structures before the next headcount decision is the most practical starting point. The HMRC employment status guidance and the Check Employment Status for Tax tool both confirm whether a proposed arrangement meets the legal definition of self-employment, reducing the risk of a compliance challenge later.
What to Expect From National Insurance Policy Through 2026 and Beyond
Review HMRC policy announcements each autumn, ahead of the Budget, to anticipate threshold or rate adjustments before they reach your payroll. The 2025 changes were signalled in the October 2024 Autumn Statement, giving payroll teams roughly five months to model their impact.
No confirmed rate changes are scheduled for April 2026 at the time of writing. The secondary threshold and 15% employer rate are expected to hold through 2025/26, though the government has reserved the right to uprate thresholds against fiscal targets. The Employment Allowance at £10,500 is also expected to remain static.
The Office for Budget Responsibility has flagged sustained pressure on public finances, which historically correlates with tighter NI thresholds rather than rate reductions. Employers planning workforce growth over the next two to three years should build the current cost structure into financial models rather than assuming relief. Setting smart goals for headcount expansion that account for full NI liability per hire will produce more accurate labour cost projections.
Frequently Asked Questions
What National Insurance changes affect employer costs in 2026?
From April 2025, employer National Insurance contributions rose to 15%, up from 13.8%. The secondary threshold dropped to £5,000 per year, meaning employers start paying NI on lower earnings. The Employment Allowance increased to £10,500, partially offsetting these higher costs for smaller businesses.
How have employer National Insurance rates and thresholds shifted compared with earlier years?
The employer National Insurance rate rose from 13.8% to 15% in April 2025. At the same time, the Secondary Threshold dropped from £9,100 to £5,000 per year, meaning contributions begin on a larger portion of each employee’s earnings. Both changes combined increased payroll costs significantly for most employers.
Which employees and earnings bands create the biggest change in employer National Insurance costs in 2026?
Focus payroll reviews on staff earning between £9,100 and £25,000 annually. The secondary threshold reduction to £5,000 combined with the rate rise to 15% hits lower-paid and part-time workers hardest. Employers with large numbers of these staff face proportionally larger cost increases than those with predominantly higher-earning full-time workforces.
How can employers calculate the financial impact of the 2026 National Insurance changes on payroll?
The secondary threshold now sits at £5,000, down from £9,100. Apply the 15% employer rate to any salary above that figure. For each employee earning above the threshold, the annual cost increase versus the previous 13.8% rate on earnings above £9,100 can be calculated directly from payroll software or HMRC’s Basic PAYE Tools.
What steps should employers take to prepare for higher National Insurance costs in 2026?
Employer National Insurance rises to 15% from April 2026, increasing payroll costs across most business sizes. Review headcount budgets and run updated payroll projections before the change takes effect. Adjust employment contracts, pension contributions, and salary review cycles to reflect the new liability.
