Does the 2025 National Insurance Rise Really Affect Employers?

The National Insurance (NI) rise and reduction in thresholds are set to increase payroll costs for businesses across the UK. The government’s boost to the Employment Allowance aims to help, but how much will it really offset? Who will benefit the most, and who will feel the biggest impact?

Talk Staff’s Payroll Services Team have been busy examining the figures and this blog breaks down the changes, explains how many employees the new allowance truly covers, and highlights why the smallest employers stand to gain the most while larger, growing businesses are disproportionately affected.

The National Insurance Rise: A Quick Recap

From April 2025, the employer’s NI contribution rate will increase from 13.8% to 15%, while the threshold for contributions will drop significantly from £9,100 to £5,000.

This means that a larger portion of every employee’s salary will now be subject to employer NI contributions, compounding the impact of the rate increase.

Updated Calculations: Employer NI for £30,000 Salary

Here’s how these changes affect employer NI contributions for an employee earning £30,000 annually:

1. Current Employer NI Calculation (Before April 2025):
   • Threshold: £9,100
   • Taxable Earnings: £30,000 – £9,100 = £20,900
   • Employer NI (13.8%): £20,900 × 13.8% = £2,884.20
2. New Employer NI Calculation (From April 2025):
   • Threshold: £5,000
   • Taxable Earnings: £30,000 – £5,000 = £25,000
   • Employer NI (15%): £25,000 × 15% = £3,750.00

Increase Per Employee:

• Old NI: £2,884.20
• New NI: £3,750.00
• Additional Cost: £865.80 per employee annually

Employment Allowance: How Many Employees Does It Cover?

The Employment Allowance, increasing from £5,000 to £10,500, aims to soften the blow. But how far does it really stretch when applied to these new NI rates?

Current Allowance (£5,000):

• Employer NI for one employee: £2,884.20
• Employees covered: £5,000 ÷ £2,884.20 ≈ 2 employees

New Allowance (£10,500):

• Employer NI for one employee: £3,750.00
• Employees covered: £10,500 ÷ £3,750.00 ≈ 3 employees

The Reality

The increased allowance will cover the employer NI contributions for up to 3 employees earning £30,000 annually. However, employers with larger teams will still face significant additional costs beyond the allowance.

Impact on Small vs. Growing Businesses

While the increased Employment Allowance provides meaningful relief for very small businesses, larger or growing businesses will bear the full brunt of the NI changes.

1. Small Employers with 2–3 Employees:
   • These businesses will see their employer NI contributions fully covered by the new allowance, shielding them from additional costs.
2. Larger Employers with Growing Teams:
   • Businesses with more than 3 employees will still benefit from the allowance but will have to cover the rising costs for the remainder of their workforce.

Example: Business with 10 Employees Earning £30,000 Each

• Total Employer NI Costs (New Rate): 10 × £3,750.00 = £37,500.00
• Offset by New Allowance: £10,500
• Remaining NI Cost: £37,500 – £10,500 = £27,000

Result: Larger businesses face an additional £27,000 in employer NI costs, compared to smaller employers who may see their contributions fully offset.

Who Is Eligible for Employment Allowance?

Not every employer qualifies for the Employment Allowance. To claim, your business must meet the following criteria:

Eligibility Criteria:

• Your Employer NI Liability is £100,000 or Less: Businesses with an annual NI liability exceeding this amount are not eligible.
• You Employ Staff: Sole directors with no employees cannot claim the allowance.
• You Are a Small Business, Charity, or Community Amateur Sports Club (CASC): These organisations are prioritised for support.

Ineligibility Criteria:

• Public bodies or employers performing public functions (e.g., local councils).
• More than 50% of your employees work on public sector contracts.

How to Claim Employment Allowance

Claiming the Employment Allowance is simple, provided you meet the eligibility criteria. Here’s how:

1. Check Your Eligibility: Ensure your business qualifies under HMRC guidelines.
2. Use Payroll Software: Most payroll systems allow you to claim Employment Allowance during RTI (Real-Time Information) submissions.
3. Contact HMRC if Necessary: For manual claims or corrections.

Missed Previous Claims? You may be eligible to reclaim allowances for past years if you failed to claim but were eligible.

Talk Staff: Helping You Navigate Payroll Challenges

The National Insurance rise and threshold reduction create new challenges for businesses, but Talk Staff is here to help.

What We Offer:

• Payroll Outsourcing: Free up time and reduce administrative burdens by outsourcing payroll to our expert team.
• Employment Allowance Reclaims: If you missed claiming Employment Allowance in previous years, we can help you reclaim funds retroactively.
• Cost Management Strategies: Ensure your business remains compliant while finding ways to reduce costs and protect profitability.

With Talk Staff, you can stay ahead of regulatory changes and focus on what matters most—growing your business.

Take Action Now

The National Insurance rise and threshold reduction will increase payroll costs for businesses of all sizes. For small employers, the increased Employment Allowance provides meaningful relief, but for growing businesses, the changes could result in substantial additional costs.

Don’t leave money on the table. Contact Talk Staff today to manage payroll efficiently, reclaim missed allowances, and protect your business against rising costs. Together, we’ll help your business thrive.

---

FAQs

• What is the new rate for employer NI contributions?
  The new employer NI rate will increase from 13.8% to 15%, starting April 2025.
• What is the new NI threshold for employers?
  The threshold for employer NI contributions will drop from £9,100 to £5,000.
• What is the Employment Allowance, and how much is it?
  The Employment Allowance allows eligible employers to offset their NI contributions. It will increase from £5,000 to £10,500 annually from April 2025.
• How many employees does the Employment Allowance cover?
  At the new rate of 15%, the £10,500 allowance will cover the NI contributions for up to 3 employees earning £30,000 annually.
• Who is eligible for Employment Allowance?
  Businesses with an employer NI liability of £100,000 or less in the previous tax year, that employ staff, and meet other criteria (e.g., small businesses, charities) are eligible.
• Can I reclaim missed Employment Allowances?
  Yes, businesses that failed to claim the allowance in previous years may be eligible to reclaim funds. Talk Staff can assist with this process.