The employer national Insurance contributions (NICs) rate has risen to 15% for 2025/26. Add in a lower secondary threshold and higher Class 1A charges on benefits, and the payroll bill for many employers will rise this year. The good news is that there are clear, legal payroll strategies that can soften the impact without harming culture or compliance.
In this article, we set out what changed on 6 April, cost the rise across typical salary bands, and share practical steps you can take now to protect cashflow and keep your team on side. We will also highlight how to make the most of the bigger employment allowance, and where salary exchange and benefit reviews may help.
Wage growth remains positive, even if it is slowing, so many employers are weighing pay awards at the same time as a higher on-cost. Recent labour market data shows annual growth in total pay of 5.5% in the three months to March 2025, with regular pay growth at 1.8% in real terms (Office for National Statistics, 2025).
That makes planning decisive – especially for small and medium-sized enterprises (SMEs) where payroll is often the single biggest cost. Our aim here is to give you a clear, usable framework of payroll strategies that balances reward, affordability and compliance. If you would like help applying any of this to your organisation, our payroll team is ready to talk.
What changed from 6 April 2025
Three headline changes are driving the cost increase (HMRC, 2025).
• Employer NIC rate: The main secondary Class 1 rate is now 15% across standard category letters.
• Secondary threshold: Employers start paying NIC from £5,000 a year per employee, down from £9,100.
• Class 1A/1B: The rate on benefits, expenses and certain lump sums is also 15%.
Employment allowance has been increased to £10,500, and the previous rule that blocked claims if your prior-year Class 1 NIC exceeded £100,000 has been removed – larger employers can now qualify if they meet the other conditions (HMRC, 2025). You should also remember existing 0% employer NIC reliefs still apply in certain cases up to the relevant upper secondary thresholds – for example, eligible under-21s, apprentices under 25, veterans, and qualifying Freeport and Investment Zone roles.
What the NIC rise looks like at typical salaries
To make this real, here is the extra employer NIC due in 2025/26 compared to 2024/25 for common pay points. These figures assume a single employee with straightforward earnings:
- £25,000 salary: about £806 more this year.
• £30,000 salary: about £866 more this year.
• £35,000 salary: about £926 more this year.
• £50,000 salary: about £1,106 more this year.
A helpful rule of thumb: for employees above the threshold, the extra cost is roughly 1.2% of gross salary plus about £506 due to the threshold drop and rate rise. Your actual figures will vary with pay patterns, benefits and reliefs, but this is a solid starting point for budgeting.
Practical payroll strategies for 2025/26
Make the most of employment allowance
The higher £10,500 allowance can offset a meaningful chunk of your bill (HMRC, 2025). At a 15% rate, it covers about £70,000 of employer-NIC-able pay above the threshold across your workforce. Consider the following actions.
• Eligibility check: Group companies and charities should confirm which entity should claim and that connected-company rules are understood.
• Claim early: Activate the claim in your payroll software so savings flow through in-year, improving cashflow.
• Forecasting: Allocate the allowance across your headcount plan – do not forget starters, leavers and seasonal peaks.
Use salary exchange carefully
Salary exchange (often used for pension contributions) can reduce employer NIC while maintaining employee value.
• Pensions: Exchange employee contributions for employer contributions, preserving take-home and saving 15% employer NIC on the exchanged amount.
• Other benefits: Approved schemes such as cycle to work and ultra-low-emission car leases can also be efficient, subject to rules.
• Guardrails: Always test against national minimum wage, check benefit-in-kind implications, update contracts and consult staff properly.
Review benefits now Class 1A is 15%
With Class 1A at 15%, revisit the cost–benefit of your package.
• High-cost benefits: Private medical, cars and cash allowances – compare value to staff with the new NIC rate factored in.
• Swap where sensible: Consider shifting budget into pensions, training and well-targeted allowances that support retention.
• Compliance hygiene: Ensure P11D data is complete and accurate – avoid penalties and interest.
Target your pay award
Pay growth is still running in the mid-single digits, so structure awards with care.
• Differentiated awards: Focus increases where the market is tight or performance warrants it – across-the-board rises amplify NIC costs.
• Timing: Consider staging awards to smooth cashflow.
• Mix: Where appropriate, use one-off bonuses for flexibility – but remember employer NIC applies, so model the full on-cost.
Optimise your workforce profile
Reliefs and thresholds can materially change the overall bill.
• Youth and apprentice reliefs: Where recruitment fits your plan, eligible under-21s and apprentices can attract a 0% employer NIC up to the upper secondary threshold.
• Roles in qualifying zones: Freeport and Investment Zone posts enjoy 0% employer NIC up to £25,000 a year – check your facts before hiring decisions.
• Rostering: Balanced use of part-time and flexible contracts can help you align hours to demand without over-committing fixed cost.
Tighten payroll processes
Accuracy and timing matter when rates move.
• Data quality: Do regular audits – correct category letters, right relief flags and no gaps in addresses or dates of birth.
• Real Time Information (RTI) controls: Reconcile submissions monthly against general ledger to catch errors early.
• Benefits workflow: Set clear cut-off dates for benefits changes so Class 1 vs Class 1A treatment is right first time.
Build a simple plan to protect cashflow
A modest amount of planning goes a long way.
• Headcount model: List every role, salary and benefits – quantify 2025/26 employer NIC and Class 1A at 15%.
• Scenario testing: Model proposed pay awards, recruitment plans and any salary exchange – sense check affordability under a base and a cautious scenario.
• Governance: Agree your approach with finance and HR, document choices, and communicate with staff – clarity builds trust.
We are here to make this easier. If you would like a tailored forecast and implementation plan, our payroll service can run the numbers, set up any salary exchange, and keep your compliance tight. Where a broader review is needed, our business tax team can align your payroll decisions with wider tax planning.
Ready to act on payroll strategies that work
This is a tough year for employers, but it is manageable with early decisions and clear communication. The combination of a 15% employer NIC rate, a lower secondary threshold of £5,000 and higher Class 1A means doing nothing will erode margins. Equally, a well-planned mix of employment allowance, targeted pay awards and carefully designed salary exchange can keep your costs under control, protect key benefits and maintain morale. The data points to continued, if cooling, wage growth, so a measured plan is the sustainable choice. The expanded employment allowance and the removal of the £100,000 cap also give many employers more room to manoeuvre than last year.
If you would like a quick diagnostic of your NIC exposure and a shortlist of practical payroll strategies for your business, get in touch. We will review your current set-up, model the options and implement the payroll strategies that best fit your finances and your people.