Use our Employer National Insurance Calculator to work out the changes coming up on 6th April 2025.
Employee National Insurance Calculator
Enter the salary of each employee to calculate the Employer National Insurance Contributions under the current 2024/25 rules and the new 2025/26 rules.
Employer National Insurance Changes
From 6 April 2025, significant changes to Employer National Insurance Contributions (NICs) will come into effect. The government has announced adjustments to the NIC rate, the threshold at which employers start paying NICs, and the Employment Allowance. These changes will impact businesses of all sizes, affecting payroll costs and overall employer liabilities.
This article explores the key changes, how they will affect employers, and what businesses should consider to manage the transition effectively.
What Is Changing?
Increase in Employer NIC Rate
Currently, employers pay 13.8% in NICs on earnings above the secondary threshold. From April 2025, this rate will increase to 15%, raising costs for employers across the board.
Reduction in the Secondary Threshold
The secondary threshold, which is the point at which an employer starts paying NICs for an employee, will decrease from £9,100 to £5,000 per year. This means that more of an employee’s earnings will be subject to NICs, increasing employer liabilities.
Increase in the Employment Allowance
The Employment Allowance, which reduces the amount of NICs that smaller employers have to pay, will increase from £5,000 to £10,500. Additionally, the previous £100,000 total NIC bill eligibility cap will be removed, meaning all eligible businesses can claim the allowance, regardless of their NIC liability.
Impact on Employers
These changes will have financial and operational implications for employers. The combination of a higher NIC rate and a lower threshold means businesses will pay more in NICs per employee. However, the increase in the Employment Allowance will offset some of this increase, particularly for smaller businesses.
Increased Payroll Costs
With both a higher rate and a lower threshold, employers will see higher payroll costs per employee. Businesses with larger workforces or employees earning significantly above the threshold will experience the most substantial increases.
More Employers Paying NICs
Lowering the threshold to £5,000 means that more employees will be subject to Employer NICs. Businesses with part-time or lower-paid workers may now have to budget for NICs on employees who previously earned below the threshold.
Greater Support for Small Businesses
The increase in the Employment Allowance to £10,500 will provide additional tax relief for small and medium-sized businesses. Employers who previously maxed out the £5,000 allowance will see a significant reduction in their NIC liability under the new rules.
Removal of the £100,000 NIC Bill Restriction
Under the current system, businesses with a total Employer NIC bill of £100,000 or more per year cannot claim the Employment Allowance. From April 2025, this restriction will be removed, allowing larger employers to benefit from the increased allowance.
How Businesses Can Prepare
1. Review Payroll Costs
Employers should calculate the impact of the new NIC rate and threshold on their workforce. Adjustments to budgeting and financial forecasts may be required to accommodate the increased NIC liability.
2. Maximise the Employment Allowance
With the allowance increasing to £10,500, businesses should ensure they are fully utilising this relief where applicable. Even if a company was previously ineligible, it may now qualify under the new rules.
3. Assess Workforce Costs
Businesses should consider the impact on different salary levels. With the threshold decreasing, even lower-paid employees will contribute to the employer NIC bill. Employers might evaluate compensation structures, bonuses, and potential salary adjustments.
4. Consider Payroll Software and Accounting Adjustments
Payroll systems will need to reflect the new NIC rate and threshold from April 2025. Employers should ensure their accounting software is updated or work with their payroll provider to ensure compliance.
5. Plan for Cash Flow Adjustments
The increase in Employer NICs will directly affect cash flow, particularly for businesses with large numbers of employees. Employers should conduct financial planning to prepare for the higher outgoings and assess whether the Employment Allowance increase will provide enough relief to offset these costs.
Who Will Be Most Affected?
While all businesses will feel the impact of the changes, the degree of impact varies depending on company size, employee salary levels, and eligibility for reliefs.
- Small businesses with fewer employees may benefit from the higher Employment Allowance, which could significantly offset increased costs.
- Mid-sized businesses with employees earning above the secondary threshold will likely see higher NIC bills, though they can now claim the Employment Allowance regardless of their total NIC liability.
- Large employers with high payroll costs will face the biggest increases in NIC costs due to the higher rate and lower threshold, but the removal of the £100,000 restriction means they can now claim relief on the first £10,500 of their NIC bill.
How to Calculate Your Employer National Insurance
Understanding how to calculate Employer National Insurance Contributions (NICs) is essential for businesses to accurately forecast payroll costs and budget effectively. With the changes coming into effect from 6 April 2025, knowing how to compute Employer NICs under both the current (2024/25) and future (2025/26) rules will help businesses assess the financial impact.
Step 1: Identify the Employee’s Earnings
Employer NICs are calculated based on an employee’s gross salary before tax. However, NICs are only applied to earnings above the secondary threshold.
For example, if an employee earns £30,000 per year, NICs are not paid on the entire salary, but only on the portion exceeding the threshold.
Step 2: Determine the Applicable NIC Rate and Threshold
Employer NICs are calculated using different thresholds and rates depending on the tax year:
| Tax Year | NIC Rate (%) | Secondary Threshold (£) |
|---|---|---|
| 2024/25 | 13.8% | £9,100 |
| 2025/26 | 15% | £5,000 |
Step 3: Calculate the Taxable Salary
The taxable salary is the amount of an employee’s earnings above the secondary threshold.
Formula:
Taxable Salary = Employee’s Gross Salary – Secondary Threshold
For an employee earning £30,000 per year:
- 2024/25: £30,000 – £9,100 = £20,900 (Taxable Salary)
- 2025/26: £30,000 – £5,000 = £25,000 (Taxable Salary)
Step 4: Apply the Employer NIC Rate
Once the taxable salary is identified, apply the relevant Employer NIC rate.
Formula:
Employer NIC = Taxable Salary × NIC Rate
For an employee earning £30,000 per year:
- 2024/25: £20,900 × 13.8% = £2,884
- 2025/26: £25,000 × 15% = £3,750
Step 5: Subtract the Employment Allowance (if applicable)
Employers eligible for the Employment Allowance can reduce their total Employer NIC bill. The allowance offsets NICs up to a set limit per year.
| Tax Year | Employment Allowance (£) |
|---|---|
| 2024/25 | £5,000 |
| 2025/26 | £10,500 |
If a business qualifies for the Employment Allowance, the total NIC bill is reduced by the allowance amount.
For example, if a business with multiple employees has an Employer NIC bill of £12,000 in 2025/26, they can subtract the £10,500 Employment Allowance, leaving a final NIC liability of £1,500.
Worked Example: Employer NIC for Multiple Employees
A business with five employees, each earning £30,000 per year, would calculate Employer NICs as follows:
2024/25 Calculation
- Taxable Salary per Employee: £20,900
- Employer NIC per Employee: £2,884
- Total Employer NIC for 5 Employees: £14,420
- Final Employer NIC (after £5,000 Employment Allowance): £9,420
2025/26 Calculation
- Taxable Salary per Employee: £25,000
- Employer NIC per Employee: £3,750
- Total Employer NIC for 5 Employees: £18,750
- Final Employer NIC (after £10,500 Employment Allowance): £8,250
What Employers Need to Do Next
- Review all employee salaries to determine taxable amounts under the new rules.
- Calculate total Employer NIC liability for different tax years to assess cost increases.
- Ensure eligibility for the Employment Allowance and apply it correctly.
- Update payroll systems to reflect new NIC rates and thresholds from 6 April 2025.
- Plan ahead for cash flow adjustments, particularly for businesses with large workforces.
Understanding how to calculate Employer NICs ensures businesses can prepare for upcoming changes, budget effectively, and take advantage of available reliefs to minimise costs.