Employer's National Insurance: what it really costs to employ someone
The salary you agree with an employee is not what they cost you. Employer's National Insurance, pension contributions and the Employment Allowance all move the real figure, and since April 2025 they have moved it noticeably.
The rate and the threshold
For 2026/27, employers pay National Insurance at 15% on each employee's earnings above the secondary threshold of £5,000 a year (£417 a month). Both figures were set in April 2025, when the rate rose from 13.8% and the threshold fell from £9,100, and both are unchanged this year. The combination pulled many part-time and lower-paid roles into employer's NI for the first time.
A worked example
An employee on £30,000 a year: earnings above the threshold are £25,000, so employer's NI is £3,750. Add the minimum auto-enrolment pension contribution of 3% of qualifying earnings (roughly £710 on that salary) and the true payroll cost is about £34,460 before you consider holiday cover, equipment or insurance. On a £22,000 salary the NI is £2,550; on £50,000 it is £6,750.
The Employment Allowance
Eligible employers can knock up to £10,500 off their employer's NI bill for the year. The allowance was raised and the old £100,000 eligibility cap removed in April 2025, so most businesses with staff now qualify. The main exclusion is a company whose only employee paid above the threshold is also a director: single-director companies with no other staff cannot claim. Claiming is done through your payroll software and is easy to overlook when payroll is run in-house.
What it means for a one-person company
For a director who is the only employee, there is no allowance to soften the 15%. Many directors set their salary at or around the secondary threshold, taking the rest as dividends, while making sure it is high enough to earn a qualifying year for the State Pension. The right level depends on the company's profits and your other income; it is a calculation worth redoing each April rather than a figure carried forward.
Budgeting for staff properly
The clean way to see the real cost of your team is a payroll report that shows gross pay, employer's NI and pension side by side, every month. Then it is a line in your management reporting rather than a surprise at year-end, and decisions about hiring, hours and pay rises are made on the full figure.
Rates correct for the 2026/27 tax year; they change at Budgets. This note is general guidance. We run payroll for employers from one person upwards, with the Employment Allowance claimed where it applies. Get in touch.
Published 7 October 2026.