April 2025 brought in significant changes to how National Insurance Contributions (NIC) are calculated for employers. Many businesses, especially those who run their own payroll, have reached out to us with questions, particularly around how these updates affect costs and allowances.
In this blog, we’ll break down exactly what’s changed, explain the impact on different types of businesses (including director-only companies), and provide clear examples to help make sense of it all.
Key Changes at a Glance:
- Employer NIC rate increased from 13.8% to 15%
- Secondary threshold reduced from £9,096 to £5,000
- Employment Allowance doubled from £5,000 to £10,500
- Higher employer NIC bills for many director-only payrolls
Let’s break these down and explore what this means for your business.
A Higher Cost for Employers
One of the most important changes is the increase in the Employer’s Class 1 National Insurance rate. Previously set at 13.8%, this has now increased to 15%. On its own, this may not sound too dramatic, but paired with the reduction in the secondary threshold, it can significantly increase payroll costs.
The secondary threshold, the point at which employers begin paying NIC, has dropped from £9,096 per year (or £758 per month) to just £5,000 annually (or £417 per month). In practical terms, employers will now start paying NIC on a much larger portion of each employee’s salary.
Example – Employee on a £30,000 Salary:
| Detail | Before April 2025 (13.8%) | After April 2025 (15%) |
| Gross Salary | £30,000 | £30,000 |
| Employer NIC Threshold | £9,100 | £5,000 |
| Taxable Amount for Employer NIC | £20,900 | £25,000 |
| Employer NIC Contribution | £2,884.20 | £3,750.00 |
| Increase in Employer NIC | £865.80 |
For businesses with several employees, this increase can add up quickly and may have an impact on staffing budgets or recruitment plans.
The Impact on Minimum Wage Employees
Businesses in sectors like retail and hospitality, where many employees are on or near minimum wage, are likely to feel the pinch even more.
Assuming an employee works 40 hours a week at the current National Living Wage of £11.44 per hour, their annual salary would be approximately £23,776.
Example – Employee on Minimum Wage (Full-Time):
| Detail | Before April 2025 (13.8%) | After April 2025 (15%) |
| Gross Salary | £23,776 | £23,776 |
| Employer NIC Threshold | £9,100 | £5,000 |
| Taxable Amount for Employer NIC | £14,676 | £18,776 |
| Employer NIC Contribution | £2,025.29 | £2,816.40 |
| Increase in Employer NIC | £791.11 |
This increase may be particularly challenging for businesses with a high number of minimum wage or part-time employees, where the secondary threshold now captures a greater share of payroll.
Employment Allowance: Relief with Limitations
To help mitigate these additional costs, the Employment Allowance has been increased from £5,000 to £10,500 per year. For many small businesses, this is a helpful change, allowing them to offset part, or in some cases, all of their employer NIC bill.
However, it’s important to be aware that not every business can claim it. For example, companies with only one director on payroll and no other employees are not eligible for the allowance. This is particularly relevant to many of our clients who operate as limited companies with no additional staff.
Even for larger employers, this increased allowance may only cover a small portion of their overall NIC liability, particularly if they have multiple employees or higher salaries on their books.
What About Director-Only Payrolls?
Many directors pay themselves either a low salary to stay within tax-efficient thresholds or just enough to qualify for state pension entitlements without triggering PAYE or NIC. The changes this April have affected these strategies quite significantly.
- Directors paid £758 per month (the old secondary threshold) previously incurred no employer NIC. Under the new rules, employer NIC of £51.20 per month (or £614.40 per year) is now due.
- Directors paid £1,047.50 per month (above the employee primary threshold but below the personal allowance) previously had an employer NIC liability of £39.95 per month. This has now increased to £94.57 per month, equating to £1,134.84 per year.
And again, it’s worth stressing that the Employment Allowance does not apply to these director-only setups, meaning the full cost is borne by the company.
Planning Ahead: What This Means for You
These changes may seem like a technical adjustment, but they could have real financial implications for many businesses. Increases in employer NIC might prompt some businesses to:
- Re-evaluate hiring plans
- Adjust staffing budgets
- Explore the viability of outsourcing or contractor models to manage employment costs more flexibly
For directors, these updates mean it’s worth revisiting your salary strategy to ensure it’s still the most efficient setup based on current rules.
At Venton, we’re here to help you make sense of these changes. Whether you run a team or just pay yourself as a director, we’ll work with you to:
- Review your eligibility for Employment Allowance
- Calculate your expected increase in employer NIC
- Help you understand your payroll options moving forward.
If you have any concerns about how these changes might affect your business, or you’d like us to take a fresh look at your payroll setup, just get in touch.