Employer National Insurance 2026: How to Manage Rising NIC Costs for UK SMEs

For UK business owners, HR professionals or anyone who runs a business, Employer National Insurance 2026 is one of the biggest payroll costs you need to plan for, especially now the April 2025 changes are fully in effect. With so many other tasks to manage, it’s not surprising that many SMEs are still running on autopilot, using settings they haven’t reviewed since last year and missing reliefs they’re entitled to.

Employment Hero research in partnership with YouGov found that the cost of employing someone in the UK has risen by almost 10% (9.6%), with Employer National Insurance contributing to that increase.

We’ll cover what UK businesses are paying, why and what you can do about it: the 2026 rates and thresholds, real cost examples across different salary levels, strategies to reduce your bill and the compliance basics you can’t afford to skip.

Disclaimer: The information in this article is current as at June 2026, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its affiliates (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.

What Employer National Insurance is

Employer National Insurance is a tax UK employers pay on employee earnings above a set threshold. It’s a direct business cost, meaning it doesn’t come out of your employees’ wages and it doesn’t appear on their payslips. The full amount sits on your side of the employment equation.

It’s charged on wages, salaries, bonuses and most taxable benefits. Your payroll software calculates and reports it to HMRC through Real Time Information (RTI) submissions each pay period.

Here’s how it compares to employee NIC:

For businesses, Employer NIC is a cost to be aware of and factor in when hiring someone new or agreeing on a pay rise. 

What changed for Employer NIC from 2025

Two changes came into effect from 6th April 2025 and both increase your costs. Here’s the full picture for 2026/27:

But what does all of this actually mean for UK employers? You’re paying a higher rate on a wider base. A part-time employee earning £8,000 a year used to cost you nothing in Employer NIC. Under the current rules, you pay 15% on the £3,000 above the £5,000 threshold, which equates to £450 per year. For a business with ten part-time workers in that range, that’s £4,500 in new annual costs that didn’t exist before.

Who needs to pay the Employer NIC

If you employ staff through PAYE, you need to account for Employer NIC. That includes limited companies, partnerships, sole traders with employees, charities and not-for-profit organisations.

The amount you pay depends on each employee’s earnings, their age and their National Insurance category letter. Employer NIC applies to full-time, part-time workers and temporary workers. Directors have a slightly different treatment as their NIC is calculated on an annual earnings period rather than per pay period.

Several reliefs reduce the bill for eligible employers:

• Employment Allowance: Up to £10,500 per year off your total Employer NIC bill.
• Under-21 employees: 0% Employer NIC on earnings up to £50,270.
• Apprentices under 25: 0% Employer NIC on earnings up to £50,270.
• Armed forces veterans: 0% Employer NIC for the first 12 months of civilian employment on earnings up to £50,270.
• Freeport and Investment Zone employees: Reduced NIC rates for eligible roles.

Employer National Insurance rates and thresholds for 2026

Employment Allowance explained

Employment Allowance lets eligible employers reduce their annual Employer NIC bill by up to £10,500. From April 2025, the £100,000 threshold restriction was removed, expanding eligibility to all qualifying employers regardless of their size, whilst simultaneously increasing the allowance to £10,500.

Limited companies where the only employee paid above the secondary threshold is also a director, most public sector bodies, and businesses in certain sectors (agriculture, fisheries, road freight) where subsidy control limits, under the UK’s Minimal Financial Assistance Rules, may restrict eligibility.

If you haven’t checked your eligibility recently, do it now. It’s the most straightforward way to reduce your NIC bill and some SMEs still aren’t claiming it correctly.

Worked examples for UK businesses

Example 1: Employee earning above the threshold

Scenario: A full-time employee earns £30,000 a year.

Under the old rules (13.8% rate, £9,100 threshold), the same employee cost £2,884 in Employer NIC. That’s £866 more per year at this salary level.

Total employment cost: £33,750 (salary + NIC, before pension and other overheads).

Example 2: Small team payroll

Scenario: A team of four employees on salaries of £22,000, £28,000, £35,000 and £45,000.

If this business qualifies for Employment Allowance, they can offset up to £10,500, bringing the net NIC bill to £6,000. That’s a significant saving, but only if the allowance is claimed correctly.

Example 3: Salary increase scenario

Scenario: You’re considering raising an employee from £32,000 to £36,000.

The total additional cost of this pay rise is £4,600 per year, not £4,000. That distinction matters when you’re approving salary reviews or modelling headcount budgets.

How to reduce Employer NIC costs

Once you know your numbers, the next step is making sure you’re not paying more than you need to.

Claim Employment Allowance if you’re eligible

The most direct saving available. Up to £10,500 off your annual NIC bill, with the eligibility cap removed. If you haven’t confirmed eligibility since the rules changed, that’s the first conversation to have.

Use salary sacrifice

Salary sacrifice reduces the gross salary on which National Insurance is calculated. The employee agrees to take a lower cash salary in exchange for a non-cash benefit. Pension contributions are the most common, but cycle-to-work schemes and electric vehicle leasing also qualify. Because the gross salary is lower, both you and your employee pay less NIC.

For example, if an employee earning £30,000 contributes 5% of their salary (£1,500) via a pension salary sacrifice arrangement, the employer NIC bill is reduced by £225 per year (calculated as 15% of the £1,500 sacrificed amount). Across an entire team, these savings add up significantly.

Factor in reliefs when hiring

Hiring under-21s or apprentices under 25? You pay 0% Employer NIC on their earnings up to £50,270. For roles where these candidates are a strong fit, it’s worth building into your recruitment planning.

Model salary changes before you approve them

Every pay rise increases your NIC bill. A £4,000 salary increase costs you £4,600 once NIC is included. Run the numbers before salary reviews go to sign-off — it removes surprises and makes budget conversations more accurate.

Build NIC into hiring decisions

The salary on a job description isn’t the cost of that hire. Add 15% of earnings above £5,000 for Employer NIC, plus the minimum 3% employer pension contribution and you have a more honest picture. A £35,000 hire costs approximately £49,400 before other overheads.

Review director remuneration

Directors who own their company often take a low salary combined with dividends, as dividends are not subject to Employer NIC. The salary is typically set at or above the Lower Earnings Limit (£6,708 for 2026/27) to preserve National Insurance credits while remaining below the Primary Threshold (£12,570), where employee NIC becomes payable. However, employer NIC is due on earnings above the Secondary Threshold (£5,000), so a salary at the Lower Earnings Limit will attract a small employer NIC charge. If your remuneration strategy hasn’t been reviewed recently, it’s worth discussing it with your accountant to ensure it remains tax-efficient and aligned with current thresholds.

Employer NIC compliance basics

Payroll errors don’t just create extra work, they can trigger HMRC penalties and leave you exposed at audit. These are the basics worth getting right.

Keep records accurate

Employer NIC calculations depend on accurate employee data: National Insurance number, category letter, date of birth (for age-related reliefs) and pay frequency. Errors create errors in your RTI submissions to HMRC. Review records when new starters join, when working patterns change and when someone crosses an age threshold.

Submit on time

• Full Payment Submission (FPS): Filed every time you run payroll, on or before the payment date.
• Employer Payment Summary (EPS): Used to claim Employment Allowance and report months with no payments.

Late or incorrect submissions can result in penalties. Set reminders and make sure whoever runs your payroll knows which submission is needed and when.

Keep payroll records

HMRC can request records going back several years. Keep payslips, RTI submissions, Employment Allowance claims and any NIC relief documentation. Most payroll software stores these automatically so check you can export them if needed.

Stay on top of Employer NIC with Employment Hero

Employer National Insurance in 2026 is more expensive than it was and the costs are locked in until at least 2028. The businesses that manage it best are those that know their numbers, claim every relief they’re entitled to and factor the real cost of employment into pay and hiring decisions. 

This is where Employment Hero can support UK businesses. Our AI-powered platform takes the traditional isolated elements of employment and puts them into one place. Find and hire top talent, manage complex payroll, support compliance and more. 

Want to find out how Employment Hero can help you manage Employer NIC?