The 15% Reality: How the New Employer NI Rate Affects Your P&L — And How to Offset It

The 2025/26 tax year opened with the employer National Insurance rate at 15% — up from 13.8% — and the secondary threshold at £5,000 per year, down from £9,100. Both changes applied simultaneously from 6 April 2025. For a business with 100 employees, the combined effect is a payroll cost increase that does not come with a corresponding rise in productivity, output, or headcount. This piece quantifies the impact, explains what the Employment Allowance change does and does not offset, and sets out the salary sacrifice mechanisms through which employers can reduce their NI liability on a live payroll.

What Changed on 6 April 2025 — The Rate, the Threshold, and the Net Effect

The HMRC rates and thresholds for employers 2025 to 2026 set out the position for 2025/26 in full. The headline figures are: employer Class 1 NI at 15% (up from 13.8%); the secondary threshold at £5,000 per year (down from £9,100); and the Employment Allowance increased to £10,500, with the previous £100,000 employer NI liability cap removed.

The combined effect of the rate increase and the threshold reduction means that employer NI becomes payable earlier on each employee's salary, and at a higher rate once it does. These two changes act in the same direction — both increase the employer's liability — making this the most significant uplift to employer NI cost in a generation.

The Employment Allowance increase provides partial relief. For the smallest employers — those with an annual NI bill at or below the allowance — the change may be broadly cost-neutral. For mid-market employers with a payroll that routinely generates NI liabilities well above £10,500, the allowance absorbs a fixed portion of the cost but does not change the marginal rate at which each additional employee is taxed.

Worked Example: The NI Cost Increase on a 100-Person Payroll

Consider a business with 100 employees, all earning £35,000 per year. Under the previous regime (2024/25), employer NI applied to the portion of each salary above £9,100, at 13.8%. That gives a per-employee NI liability of approximately £3,574 (£25,900 × 13.8%), and a total employer NI bill of approximately £357,400 across the workforce.

Under the 2025/26 regime, employer NI applies to the portion above £5,000, at 15%. That gives a per-employee NI liability of approximately £4,500 (£30,000 × 15%), and a total bill of approximately £450,000. The year-on-year increase is approximately £92,600 on this payroll — before accounting for any salary growth. For a business with higher average salaries, or a larger headcount, the absolute increase is greater. For a business growing its headcount through the year, the cost compounds with each new hire.

The full employer NI calculation methodology is published by HMRC in the rates and thresholds for employers guide. Employers uncertain about their specific liability should work through this with their payroll provider before drawing conclusions from illustrative figures.

Why the Employment Allowance Increase Doesn't Solve the Problem for Growing Teams

The Employment Allowance — which allows eligible employers to reduce their annual employer NI bill by up to £10,500 — is a meaningful concession for micro and small employers. The removal of the £100,000 eligibility cap extends access to a wider group. The GOV.UK Employment Allowance guidance sets out the full eligibility criteria.

The problem for growing mid-market employers is mathematical. The Employment Allowance is a fixed annual offset. As headcount increases, so does the NI liability — but the allowance does not scale. A business with 50 employees may find the allowance absorbs a meaningful proportion of its additional cost. A business with 200 employees will find it covers a small fraction.

For Finance Directors modelling the 2025/26 cost base, the Employment Allowance should be included in the calculation — but it should not be the primary mechanism for managing the NI increase. The structural solution is a programme of salary sacrifice arrangements that reduce the gross salary bill on which NI is calculated.

The Offset Mechanism: How Salary Sacrifice Reduces Employer NI on a Live Payroll

Salary sacrifice works by reducing an employee's contractual gross salary in exchange for a benefit provided by the employer. Because the NI calculation is applied to the lower gross salary, both employer and employee NI are reduced. This is not a deferral or a rebate — it is a structural change to the calculation. HMRC's full guidance on salary sacrifice arrangements sets out which arrangements qualify and what documentation is required.

At a 15% employer NI rate, every £1,000 of gross salary sacrificed reduces the employer's NI liability by £150. For an employer with 50 employees each sacrificing £5,000 of gross salary per year, the annual employer NI saving is £37,500. That saving is direct, immediate, and does not require any change to the employee's net take-home position if the benefit received offsets the income lost.

The saving only exists, however, if employees enrol. A salary sacrifice scheme that has been approved, implemented, and communicated but achieves 15% participation generates 15% of the modelled NI saving. The communication and enrolment challenge is therefore not just an HR problem — it's also a Finance problem. Our guide setting out how to communicate salary sacrifice to sceptical employees addresses the specific objections that suppress enrolment and how to address each one accurately and early.

Which Schemes Generate the Most Material Saving in 2025/26

Not all benefits arrangements reduce employer NI. Only those structured as genuine salary sacrifice — where the employee contractually reduces gross salary in exchange for the benefit — generate the offset. HMRC's salary sacrifice guidance sets out which arrangements qualify and what documentation is required.

The schemes that generate the most commercially significant employer NI saving in 2025/26 are:

• Electric vehicle (EV) salary sacrifice. The Benefit-in-Kind rate on fully electric vehicles for 2025/26 is 3%. The employer NI saving on a typical salary sacrifice amount — often £400 to £700 per month — significantly exceeds the BIK liability for most employees. This is currently the most commercially efficient salary sacrifice arrangement available.

• Pension salary sacrifice. Routing employee pension contributions through salary sacrifice rather than relief at source reduces gross salary and therefore employer NI. For employers with large workforces contributing meaningful percentages of salary into pensions, the aggregate NI saving is material.

• Technology and mobile phone schemes. Employees sacrifice gross salary to receive devices provided by the employer. Where the device is a mobile phone provided under the specific exemption, there is no BIK charge. For other technology, BIK applies but is typically modest relative to the NI saving.

• Workplace nursery schemes. Where the employer has financial and management responsibility for the nursery provision, the full value of the benefit is exempt from both income tax and employer NI. The compliance requirement is specific — employers should review their arrangement against HMRC's criteria before treating the saving as confirmed. See our detailed guidance on workplace nursery scheme compliance alongside HMRC EIM21900.

• Cycle to work schemes. A modest but straightforward NI saving with no BIK charge. Participation rates vary by employer, but the scheme requires minimal administration and generates a reliable per-participant saving.

What Finance Teams Should Have Modelled by End of Q1 — and What to Do If They Haven't

The first payroll run under the new rate will have made the cost increase visible. For Finance teams that modelled the impact before April, the priority now is execution — ensuring that salary sacrifice schemes are live, communication is underway, and enrolment data is being tracked. For Finance teams that have not yet modelled the offset, the priority is to do so before the end of Q1 2025/26.

The modelling exercise requires four inputs per scheme: eligible headcount, average sacrifice amount per participant, projected participation rate, and scheme administration cost. The output is a projected annual NI saving. That figure, set against the cost of implementing and administering the scheme, produces an ROI calculation that can be presented to the board.

For most employers running EV or pension salary sacrifice schemes at participation rates above 15%, the NI saving materially exceeds the administration cost. The question is not whether the numbers work — it is whether the scheme is structured, communicated, and monitored well enough to achieve the participation rate the model assumes.

The Utilisation Problem: Why the Saving Only Exists If Employees Actually Enrol

The most common failure mode for salary sacrifice programmes is not design — it is enrolment. Schemes that are approved, implemented, and live but poorly communicated consistently underperform their modelled NI saving. The gap between projected and actual saving is a direct function of the gap between projected and actual participation.

For HR and Finance teams preparing their first salary sacrifice communications, our guide to how to communicate salary sacrifice to sceptical employees sets out the specific objections that suppress enrolment — including the mortgage question, the minimum wage concern, and the fear of reduced take-home pay — and how to address each one accurately and early.

The Benefit Literacy Gap — the distance between an employee having access to a benefit and understanding it well enough to enrol — is the primary reason salary sacrifice schemes underperform. Closing that gap is not a communications exercise; it is a structural part of the scheme design. A platform that explains the scheme at the point of enrolment, rather than relying on a single all-staff email, consistently produces higher participation rates.