Employer National Insurance Contributions: Complete 2026 Guide

Employer National Insurance is the single largest hidden cost of employing people in the UK. Since the rate jumped to 15% in April 2025 — combined with a dramatically lower Secondary Threshold — many businesses have seen their employment costs increase by thousands of pounds per employee. Understanding exactly how employer NI works, what reliefs are available, and how to manage the cost is essential for every UK employer.

This guide focuses specifically on the employer side of National Insurance, building on our broader UK National Insurance rates guide with deeper coverage of employer-specific obligations and cost management.

Employer NI rates for 2025/26

From 6 April 2025, employers pay Class 1 Secondary National Insurance contributions at 15% on all employee earnings above the Secondary Threshold. This was a significant increase from the previous rate of 13.8%.

How to calculate employer NI

The calculation is straightforward in principle. For each pay period, take the employee's gross earnings, subtract the Secondary Threshold for that period, and multiply the result by 15%.

Monthly paid employee earning £35,000

Monthly gross pay: £35,000 / 12 = £2,916.67

Monthly Secondary Threshold: £5,000 / 12 = £416.67

Employer NI per month: (£2,916.67 - £416.67) x 15% = £375.00

Annual employer NI: £375.00 x 12 = £4,500.00

This means the true annual cost of this employee to the employer is at least £39,500 before pension contributions and any other benefits.

Weekly paid employee earning £25,000

Weekly gross pay: £25,000 / 52 = £480.77

Weekly Secondary Threshold: £5,000 / 52 = £96.15

Employer NI per week: (£480.77 - £96.15) x 15% = £57.69

Annual employer NI: £57.69 x 52 = £2,999.88

Employment Allowance: your biggest relief

The Employment Allowance is the most significant NI relief available to small and medium businesses. From April 2025, eligible employers can reduce their annual employer NI liability by up to £10,500 — more than double the previous £5,000 allowance.

Eligibility criteria

To claim Employment Allowance, you must meet all of the following conditions:

• Your total employer NI liability in the previous tax year was below £100,000
• You are not a company where the sole employee is also a director (single-director companies are excluded)
• You are not a public body or business undertaking more than half its work for a public body (with some exceptions for charities)
• You are not using it in connection with deemed payments (IR35 off-payroll working)

How to claim

Employment Allowance is not applied automatically — you must claim it through your payroll software.

1. At the start of the tax year (or when you start employing), set the Employment Allowance indicator to "yes" in your payroll software
2. Your next Employer Payment Summary (EPS) or Full Payment Submission (FPS) will notify HMRC of your claim
3. The allowance is applied against your employer NI each pay period until the £10,500 is used up
4. If you forget to claim at the start of the year, you can claim partway through — HMRC will apply it retrospectively to 6 April

Practical impact

For a small business with five employees each earning £28,000, the total employer NI before Employment Allowance would be approximately £17,250. After claiming the £10,500 allowance, the net employer NI drops to £6,750 — a saving of over 60%.

NI reliefs for specific employee groups

Beyond Employment Allowance, several reliefs reduce or eliminate employer NI for certain categories of workers. These use NI category letters to apply the correct rates.

Veterans relief in practice

The veterans NI relief is particularly valuable but often overlooked. For a veteran's first 12 months of civilian employment, the employer pays zero NI on earnings up to £50,270. For a veteran hired at £35,000, this saves the employer £4,500 in the first year.

To qualify, you must have received confirmation that the employee is a qualifying veteran (they should provide their military service details), and you must apply NI category V in your payroll software.

Class 1A and Class 1B: NI on benefits

Employer NI obligations extend beyond wages. If you provide taxable benefits in kind to employees, you must pay Class 1A NI at 15% on the taxable value of those benefits.

Common benefits subject to Class 1A include company cars and fuel benefit, private medical insurance, gym memberships or wellness benefits, beneficial loan arrangements above the £10,000 threshold, and relocation expenses above the £8,000 exemption.

Class 1A NI is calculated annually after the end of the tax year and reported on forms P11D and P11D(b). Payment is due by 22 July following the end of the tax year (19 July for non-electronic payments).

Class 1B NI applies to items covered by a PAYE Settlement Agreement (PSA). The rate is also 15%, calculated on the grossed-up value of the items in the PSA. Payment is due by 22 October following the end of the tax year.

Salary sacrifice: reducing employer NI legally

Salary sacrifice is one of the most effective ways to reduce employer NI costs legally. When an employee gives up part of their gross salary in exchange for a non-cash benefit, the employer saves NI on the sacrificed amount (provided the benefit itself is not subject to Class 1 NI).

Benefits that work well with salary sacrifice

• Pension contributions: The most common and effective sacrifice. No NI on the amount sacrificed by the employee, and the employer saves 15% on that amount too
• Cycle-to-work scheme: No NI on the sacrificed amount during the scheme period
• Ultra-low emission company cars: Favourable benefit-in-kind rates make salary sacrifice attractive
• Childcare vouchers: For employees already in pre-April 2018 schemes

Important constraints

The post-sacrifice salary must still meet or exceed the National Minimum Wage. If it does not, the sacrifice arrangement is invalid and HMRC can demand the full NI.

Since April 2017, the "optional remuneration arrangements" (OpRA) rules mean that most benefits provided through salary sacrifice are taxed on the higher of the salary sacrificed or the taxable value of the benefit. However, pensions, cycle-to-work, ultra-low emission cars, and childcare vouchers are exempt from OpRA.

Apprenticeship Levy

Employers with an annual pay bill exceeding £3 million must pay the Apprenticeship Levy at 0.5% of their total pay bill. Each employer receives a £15,000 annual allowance, so the effective threshold is a pay bill of £3 million.

The Levy is paid through PAYE alongside employer NI. Funds appear in a Digital Apprenticeship Service account and can be used to fund apprenticeship training costs. Unused funds expire after 24 months.

While the Levy is separate from NI, it is another payroll-related cost that scales with your wage bill. For a business with a £5 million pay bill, the annual Levy is (£5,000,000 x 0.5%) - £15,000 = £10,000.

Employer NI for directors

Directors have unique NI rules. Instead of the standard per-pay-period calculation, their NI is calculated on a cumulative annual basis. This means you total all earnings from 6 April to the date of each payment and apply the annual thresholds, then deduct any NI already paid.

This prevents directors who take irregular payments — such as a small monthly salary plus an annual bonus — from overpaying NI. Your payroll software should handle this automatically, but you must ensure each director is correctly flagged in the system.

For more detail on director NI calculations, see our UK National Insurance rates guide.

Reporting and payment

Employer NI must be reported to HMRC on every Full Payment Submission (FPS) through your PAYE Real Time Information reporting. The FPS is due on or before each payday.

Payment is due to HMRC by the 22nd of the following month (for electronic payments) or the 19th (for non-electronic payments). Small employers paying less than £1,500 per month can pay quarterly instead.

If you underpay employer NI, HMRC will issue a generic notification. Persistent underpayment triggers an investigation and potential penalties.

Strategies to manage employer NI costs

While you cannot avoid employer NI, you can manage it effectively:

1. Claim Employment Allowance — the simplest and most impactful step for eligible businesses
2. Use correct NI category letters — ensure under-21s, apprentices, and veterans are on the right categories
3. Implement pension salary sacrifice — saves 15% employer NI on every pound sacrificed
4. Review benefits strategy — some benefits are NI-exempt; restructuring your package can reduce Class 1A costs
5. Consider workforce structure — using genuine self-employed contractors where appropriate (but never disguised employment) avoids employer NI

Frequently asked questions

Next steps

Key takeaways

Employer NI at 15% with a £5,000 Secondary Threshold is a significant cost that demands active management. Claim Employment Allowance if you are eligible — it saves up to £10,500 per year. Use the correct NI category letters for under-21s, apprentices, and veterans. Consider salary sacrifice pensions to reduce both employer and employee NI costs. And make sure you are reporting correctly through RTI each pay period.

Run your numbers through our Payroll Tax Calculator to see your total employer costs and identify opportunities to reduce your NI bill legally.