What are the employer National Insurance changes in 2025
From 6 April 2025, the government’s earlier Autumn Budget changes come into effect and increase the overall cost of employing staff.
The main updates are as follows.
Employer NICs rate increase. The main employer NICs rate (Secondary Class 1) has increased from 13.8% to 15%. This higher rate also applies to Class 1A and Class 1B contributions, for example on benefits in kind and PAYE settlement agreements.
Lower threshold for employer NICs. The Secondary Threshold has reduced from £9,100 per year to £5,000 per year. Employers now start paying NICs once an employee’s annual earnings pass £5,000, instead of £9,100.
Changes to the Employment Allowance. To support smaller employers, the Employment Allowance has risen from £5,000 to £10,500 and the previous cap has been removed. This means more businesses may qualify and some will see part or all of their employer NICs covered by the allowance.
Together, these measures are designed to raise significant additional revenue for the Exchequer and represent one of the most substantial shifts in employment taxation in recent years.
How the 2025 NIC changes will affect employer payroll costs
The combination of a higher NIC rate and a lower threshold means employers will pay more for each employee, even before any salary increases or headcount growth are considered.
Some of the impacts include the following.
Higher cost per employee. Because contributions now apply from £5,000 rather than £9,100, every pound of salary between those figures that was previously NIC free is now subject to a 15% charge. This particularly affects lower paid and part time employees who may not have attracted NICs before.
Increased pressure on labour intensive sectors. Sectors such as professional services, healthcare, property, and customer service heavy industries that rely on larger teams will see a noticeable increase in the wage bill.
Squeezed margins for growing businesses. For organisations in growth mode, the higher cost of each hire can make scaling more expensive and may require a rethink of hiring plans, pay review timing and headcount targets.
Very small employers with modest payrolls may find that the enhanced Employment Allowance offsets much of the additional cost. For medium and larger organisations, however, the increase will generally be felt in full.
Moneypenny’s hybrid model blends highly trained receptionists with AI technology to reduce the cost of every call and chat without compromising experience. Ideal for leaders looking to offset higher payroll and NIC costs.
What stays the same for employees in 2025
While employer NICs are increasing, employee National Insurance rules remain broadly unchanged for now. The earlier reductions to employee Class 1 NICs that came in during 2024 still apply.
Most employees will therefore continue to pay the following.
8% on earnings between the Primary Threshold and the Upper Earnings Limit (currently £1,048 to £4,189 per month).
2% on earnings above the Upper Earnings Limit.
Employees who are part of the PAYE system will continue to have their NICs deducted automatically through payroll each pay period, calculated separately from income tax. The key point for leaders is that the 2025 changes target employer contributions, not employee ones, although this picture is set to evolve over the medium term.
What the 2025 Budget added: the new pension salary sacrifice cap
Alongside the April 2025 NIC changes, the latest Budget added a significant new measure that affects pension contributions and long term employment costs.
From April 2029, the value of pension contributions that can be made through salary sacrifice without attracting National Insurance will be capped.
New NI exempt cap. The government has announced that only the first £2,000 of annual salary sacrifice pension contributions will remain exempt from NICs. Any contributions above that figure will attract employer and employee National Insurance.
Who is likely to be affected. The cap is expected to impact higher earners and employers with generous pension arrangements the most. For example, a senior employee sacrificing a significant portion of salary into their pension could trigger several thousand pounds of additional employer NIC once the cap is in place.
Why it matters now. Although the rule takes effect in 2029, leaders will want to factor it into long term workforce planning, reward strategy and cost modelling. Many businesses have used salary sacrifice as a way to manage NIC costs in a legitimate and attractive way. Over time, that lever will be less powerful.
How senior leaders should respond to rising NIC costs
The combined impact of higher employer NICs from 2025 and the future pension cap means leadership teams need a clear plan, both for the short term and the next three to five years.
Review your near term and medium term payroll forecasts
Start by modelling your NIC liability under the new 2025 rules, then create a second scenario that includes the pension salary sacrifice cap from 2029. This will help you understand the true long term cost of your current workforce profile and reward packages.
Check whether you can use the enhanced Employment Allowance
Smaller businesses should check their eligibility for the higher £10,500 Employment Allowance. If you qualify, it can substantially offset your employer NICs and free up budget to invest in growth or retention.
Assess the long term value of salary sacrifice schemes
Salary sacrifice remains an important benefit, but the upcoming cap changes how valuable it will be beyond 2029. Review how many of your employees are likely to be affected, stress test different contribution levels and consider how you will communicate any future changes in a transparent way.
Reduce non essential operating costs where possible
With employment becoming more expensive, many organisations are revisiting non essential spend. Reviewing office footprints, software licences, travel budgets and duplicated processes can create savings that help protect vital roles and skills.
Explore more flexible ways to resource your business
Finally, consider whether every role needs to be permanent and in house. Flexible staffing models, automation and outsourcing can help you maintain or even improve service levels while turning some fixed costs into variable ones that track with demand.
Our real people plus AI call handling and switchboard services give you enterprise level coverage without the fixed cost of extra headcount. Use us for overflow, out of hours or as a fully outsourced solution and pay only for the support you actually need.
Why outsourcing is a cost effective option during rising employment costs
When labour costs rise, the natural instinct can be to freeze hiring and ask existing teams to do more. In reality, this often leads to burnout, missed opportunities and a poorer customer experience. Outsourcing offers a different path and can help protect both your people and your margins.
By working with a specialist outsourcing partner, you can achieve the following.
Convert fixed costs into variable costs. Instead of paying for full time salaries, employer NICs, holiday pay and benefits, you pay for a service that scales with your needs. You can dial support up during busy periods and down when demand is quieter.
Remove administrative and management overhead. Recruitment, training, performance management and rota planning all take time and resource. Outsourcing moves this responsibility to your partner, freeing leaders and managers to focus on strategy and performance.
Access a larger talent pool and better continuity. An outsourced team is backed by a wider group of trained professionals, so you gain continuity that is hard to maintain in house when people are off sick or on holiday.
How Moneypenny can support businesses through the NI changes
Moneypenny supports thousands of businesses across the UK with call handling, live chat and switchboard services, all delivered through a powerful blend of real people and AI.
Our model is designed to give you the best of both worlds.
Human expertise where it matters. Your callers interact with experienced receptionists who sound like a natural extension of your in house team, building trust and protecting your brand.
AI that improves efficiency and insight. Behind the scenes, AI helps route contacts, surface information and capture data, so your business gets more value from every interaction.
Flexible support that adapts to you. You choose how we work with you, whether that is overflow support at peak times, full call handling during office hours, a 24/7 switchboard service or a tailored mix across calls and chats.
As employment costs rise, turning fixed roles like reception and switchboard into a flexible outsourced service can make a real difference to your payroll, without losing the attentive service your customers expect.
If you would like to explore what this could look like for your organisation, call us on 0333 202 1005 or visit www.moneypenny.com/uk.
For the latest official information on National Insurance rates, visit the UK government website at gov.uk/national-insurance-rates-letters.
