The Autumn Budget 2024 raised Employer National Insurance Contributions from 13.8% to 15% and dropped the secondary threshold from £9,100 to £5,000, effective from April 2025. Together these are the largest single change to UK payroll costs in a decade, and they fundamentally reshape the maths around how owner-managers should pay themselves.
What the change does in cash terms
For an employee earning £50,000, Employer NIC was £5,643 in 2024-25 (13.8% on £40,900). From April 2025 it becomes £6,750 (15% on £45,000). That is a £1,107 increase per employee per year on a £50,000 salary — replicated across the entire workforce.
For a director taking a £12,570 salary (last year's personal allowance) the cost moves from roughly £478 to £1,135. For a £30,000 salary the move is from roughly £2,884 to £3,750. Every employer with staff paid above £5,000 pays meaningfully more in 2025-26 than they did in 2024-25.
The Employment Allowance offset
The Employment Allowance increases from £5,000 to £10,500 from April 2025, and the £100,000 prior-year liability cap is removed — so more employers will qualify. Single-director companies with no other employees are excluded, but most SMEs benefit. We cover Employment Allowance in detail in a separate article. For a business with 3–10 employees, the £10,500 allowance offsets a large slice of the NIC rise.
Strategic implications for owner-managers
Salary level for director-shareholders
The traditional "£12,570 salary, balance as dividends" strategy needs reviewing. With Employer NIC at 15% on every pound above £5,000, a £12,570 salary now incurs about £1,135 of Employer NIC. A lower salary of £5,000 — still enough to count as a qualifying year for State Pension if combined with other arrangements — avoids the Employer NIC entirely. But Employment Allowance complicates the picture: a single-director company cannot claim it, so the trade-off is different for solo directors than for companies with multiple employees.
Salary vs dividend mix
For 2025-26, the dividend route has become slightly more attractive than the salary route at the margin, because dividends do not attract Employer NIC. But the analysis must factor in Corporation Tax (dividends are paid from post-tax profit), the dividend allowance of £500, and the dividend tax rates of 8.75%/33.75%/39.35%. The total tax cost of extracting £20,000 via dividend versus salary now sits within a few hundred pounds of each other for most owner-managers — pension contributions remain materially cheaper than either.
Pension contributions as the most efficient route
Because employer pension contributions attract no Employer NIC at all, they are now the single most efficient route for moving company profit into the director's personal wealth. The 15% Employer NIC saving on a £40,000 pension contribution versus an equivalent salary is £6,000 — added to the standard Corporation Tax relief and the lack of income tax, it makes pension funding genuinely transformative for owner-managers.
Salary sacrifice for employee schemes
For employers with staff above £5,000 pay, salary sacrifice pension arrangements deliver an Employer NIC saving of 15% on every pound sacrificed. On a workforce of 20 employees each sacrificing £3,000 a year, the employer saves £9,000 of NIC annually — money that can be partly redirected back into the pension scheme as additional employer contributions, making the package more attractive at no net cost.
Cash flow timing
The new NIC rate applies to all earnings paid from 6 April 2025. Bonuses, commission, and any salary review effective from that date carry the higher rate. Employers paying significant bonuses in March 2025 versus April 2025 should model the cash flow difference — the saving on a £30,000 bonus moved into the previous tax year is roughly £360.
How PushDigits is helping clients
Every payroll and owner-manager client is going through a remuneration review in spring 2025 to re-test salary, dividend, and pension splits under the new numbers. Our payroll service implements the changes in payroll software; our tax planning team models the personal-side impact across Self Assessment, Corporation Tax, and pension funding.
If you have not reviewed your remuneration package in light of the April 2025 changes, book a 30-minute remuneration review. The numbers have moved enough that almost every owner-manager has at least one decision worth re-taking. Reach us also through our contact page.