Need to know about the changes to Employers Class 1 National Insurance from 6th April 2025, their impact on employers, and strategies to mitigate the effects of the increase? Below we explain the changes and give examples of how you can calculate the effect on your business.
Let’s get started.
Firstly, what is employers NI?
This is an additional cost to the employer over and above each employee’s gross pay. It is not a deduction from employee’s pay as PAYE tax and employees NI are. It may be seen on a payslip as part of monthly payroll for transparency, but it is not a legal requirement to show this.
Employers’ NI contributions fund public benefits, including state pensions, social security benefits, and the NHS.
Changes to employers NI were announced in the Autumn 2024 Budget. These are:
- An increase in the percentage used to calculate employers NI, from 13.8% to 15%.
- A reduction of the secondary threshold where employers start paying NIC, from £9,100.00 per year to £5,000.00 per year. This breaks down to £417.00 per month, or £96.00 per week.
How is employers NI calculated?
Employers NI is calculated based on the gross pay of each employee each month. The employees gross pay, less the secondary threshold leaves the amount due for employers NI at 15%. An example of a calculation of this is below:
One employee has a monthly gross salary of £1,500.00
£1,500.00 minus secondary threshold of £417.00* = £1,083.00
Employers NI is 15%, so £1,083.00 (divided by) 100 and (multiplied by) 15 = £162.45.
So, in addition to the £1,500.00 salary, the employer would also have to pay employers NI of £162.45 to HMRC, bringing the total cost of payroll to £1,662.45 for that month.
Prior to the change from the 06th of April, employers NI due on a month’s gross salary of £1,500.00 would have been £102.40, an increase of £60.05 per month for the employer for that employee alone.
*To make your own calculations, where an employee is paid weekly the deduction is £96.00 per pay period rather than £417.00. Employers NI should still be calculated at 15%.
What is Employment Allowance?
The 06th April 2014 saw a major change. Prior to this date, employers could reclaim Statutory Sick Pay from HMRC in the same way as continues for other statutory payments today. The introduction of Employment Allowance on 06th April 2014 coincided with the removal of the ability to claim SSP.
Employment Allowance is a tax relief built into PAYE, claimed by sending Employer Payment Summary (EPS) submissions and FPS (Full Payment Submissions) to HMRC. Where eligible an employer can claim Employers Allowance, offsetting this against their employer’s NI, up to the set limit within the financial year. From 06th April 2025 this limit has increased from £5,000.00 per year to £10,500.00 per year.
Eligibility Criteria for Employers Allowance?
A limited company with one or more employees who are not directors, or a sole trader with one or more employees can claim Employment Allowance.
Limited companies where the only employee is a Director are not eligible for Employment Allowance, however where a limited company has two or more Directors that each earn above the Secondary Threshold (set at £5,000.00 for the 2025-26 tax year) are eligible.
More information about rates and thresholds for NI and other elements of payroll for the 2025-26 year can be found on the Gov.UK website by following the link here
Final thoughts on Employers NI changes from 06th April 2025
Whilst this may seem like a considerable increase for many employers, small and micro employers may find no difference to their Employer NI business costs once they have offset the new Employment Allowance rate. There may even be some employers who find that they are paying less employers NI overall.
Many employers are also considering changing their approach to pension contributions and offering a Salary Sacrifice scheme to their employees. Whilst this is cost effective in the short term, careful consideration of employer obligations around salary sacrifice during parental leave and sickness absence should be investigated.
If you would like to speak to us about employers NI or your payroll as a whole, we’d love to speak to you. Call the office today on 01384 92 90 20 or complete the get in touch form.
