April 2025 brought the most significant increase in employer National Insurance Contributions (NICs) in decades. The rate increase, combined with a lower threshold, substantially raised the cost of employing people across the UK. For many small and medium businesses, understanding the changes — and the expanded Employment Allowance — is essential for budgeting and workforce planning.
What Changed From April 2025
Two separate changes hit employers simultaneously:
1. The Rate Increased from 13.8% to 15%
Employer NI is charged on employee earnings above the secondary threshold. The rate jumped from 13.8% to 15% — an increase of 1.2 percentage points. This applies to all employers paying wages above the threshold.
2. The Secondary Threshold Was Cut from £9,100 to £5,000
Employer NI only applies above the secondary threshold — the point at which employer NI starts. This threshold was cut from £9,100 per year to £5,000 per year (equivalent to roughly £96 per week).
Together, these changes mean employers pay:
- A higher rate (15% vs 13.8%)
- On a larger portion of each employee’s earnings (because NI kicks in at a lower salary)
Combined Impact
For a full-time employee earning £30,000 per year, the employer NI cost changed as follows:
| 2024-25 | 2025-26 | |
|---|---|---|
| Secondary threshold | £9,100 | £5,000 |
| Earnings subject to employer NI | £20,900 | £25,000 |
| Rate | 13.8% | 15% |
| Employer NI cost | £2,884 | £3,750 |
| Increase | +£866 |
For a worker on the National Living Wage (approximately £23,873 for a 37.5-hour week at the 2025-26 NLW rate of £12.21), the increase is around £700 per year.
Multiplied across a workforce, these figures add up quickly. A business with 20 employees on average earnings of £30,000 faces around £17,000 extra in employer NI compared to the previous year.
The Employment Allowance: Increased to £10,500
To soften the blow for smaller businesses, the government significantly expanded the Employment Allowance from April 2025:
- The allowance rose from £5,000 to £10,500 per year
- The previous £100,000 employer NI cap that restricted eligibility was removed
The Employment Allowance reduces a business’s employer NI bill by up to £10,500. It is claimed through payroll software (or via HMRC’s Basic PAYE Tools) and is typically applied in equal amounts each pay period throughout the tax year.
Who Is Eligible?
Most businesses and charities are eligible, including:
- Limited companies with at least one employee who is not a director
- Sole traders and partnerships with employees
- Charities
- Community amateur sports clubs
Single-director companies with no other employees are NOT eligible — this exclusion remains in place. If you are the sole employee of your own company, you cannot claim the Employment Allowance.
Connected employers (companies under common control) can only claim once between them.
How Much Does the Employment Allowance Actually Help?
For a small business with a few employees whose total employer NI bill is less than £10,500, the allowance effectively wipes out their employer NI liability entirely. This is a significant benefit.
For larger businesses, the £10,500 is a fixed offset regardless of how high their employer NI bill is. A business paying £100,000 in employer NI each year still faces a net increase compared to 2024-25 despite the higher allowance.
Example: A Business With 5 Employees
Assume 5 employees all earning £30,000:
- Total employer NI in 2024-25: 5 × £2,884 = £14,420
- Total employer NI in 2025-26 (pre-allowance): 5 × £3,750 = £18,750
- After Employment Allowance (£10,500): £8,250
This business actually pays less in net employer NI than it did in 2024-25, purely because the Employment Allowance increase more than covers the rate and threshold changes.
Example: A Business With 30 Employees
Assume 30 employees all earning £30,000:
- Total employer NI in 2024-25: 30 × £2,884 = £86,520
- Total employer NI in 2025-26 (pre-allowance): 30 × £3,750 = £112,500
- After Employment Allowance (£10,500): £102,000
This business faces a net increase of approximately £15,480 — the Employment Allowance does not come close to covering the extra cost for a larger employer.
Impact on Different Types of Employers
Small Businesses (Under 5 Employees)
Smaller employers are the biggest beneficiaries of the Employment Allowance increase. Many will see their employer NI bill fall in absolute terms in 2025-26, or at worst remain similar to 2024-25. The key risk is the cut to the secondary threshold, which pulls low-paid and part-time workers into the employer NI net sooner.
Medium and Large Businesses
For businesses with larger payrolls, the Employment Allowance provides only limited relief. The combination of a higher rate and lower threshold represents a genuine cost increase. Some businesses have responded by holding back pay rises, hiring fewer staff, or restructuring how they engage workers.
Part-Time and Low-Paid Workers
The cut in the secondary threshold from £9,100 to £5,000 affects employer NI on lower earnings. A worker earning £10,000 per year generates employer NI of £750 in 2025-26 (15% × £5,000) compared to £124 in 2024-25 (13.8% × £900). This has raised concerns about the impact on part-time employment, particularly in hospitality, retail, and social care.
Charities and Voluntary Organisations
Charities that employ staff are eligible for the Employment Allowance and benefit from the increased limit. However, larger charities with significant wage bills still face higher costs in 2025-26.
Practical Steps for Employers
- Check Employment Allowance eligibility — if you haven’t already claimed, make sure your payroll software or HMRC PAYE account is set up to claim it
- Review your payroll costs — update your budgets and forecasts for 2025-26 to reflect the higher employer NI rates
- Consider salary sacrifice schemes — pension contributions made through salary sacrifice reduce employees’ gross pay, which in turn reduces employer NI on those amounts
- Explore flexible employment structures — some businesses are reviewing their use of contractors, part-time workers, and self-employed individuals, though HMRC’s IR35 rules should be carefully considered
- Plan hiring decisions — the higher threshold cost makes workforce planning more important than ever
Use our National Insurance calculator to model the employer NI cost for specific employees or salary levels.