What the 15% Employer NI rate actually means for small employers

Three levers moved. First, the Class 1 secondary (employer) NI rate rose from 13.8% to 15%. Second, the Secondary Threshold (ST) fell from £9,100 to £5,000 per employee, so NI now bites much earlier. Third, the Employment Allowance doubled from £5,000 to £10,500 and the rule excluding employers whose prior‑year Class 1 NI exceeded £100,000 was scrapped. These changes remain live for 2026. Net effect: for each employee, you now pay 15% on NI‑able earnings above £5,000. Your first £10,500 of employer NI across the payroll can be offset—once per employer—via EA, claimed through your RTI submissions. Employees’ take‑home pay is unaffected by the employer rate/threshold (their NI sits under Class 1 primary). The £3m pay‑bill trigger for the 0.5% Apprenticeship Levy still sits on top. Payroll software from the likes of Iris, Xero and Sage has updated templates; the strategic question is how you deploy EA and how you re‑price labour at the margin.

The rise to 15% and the lower ST increases gross employer NI per head; the bigger EA reduces your first‑£10,500 exposure. For one or two staff, EA can wipe out your liability entirely. For four to seven staff at typical wages, the EA increase can more than offset the rate hike; beyond that, you are a net loser. The pivot depends on headcount and pay mix. Compare a five‑person café with staff on £26,000: new per‑head NI is 15% × (£26,000–£5,000) = £3,150; team total £15,750. EA knocks off £10,500, so cash paid is £5,250. Under the old regime it was 13.8% × (£26,000–£9,100) × 5 = £11,661, less £5,000 EA = £6,661. Counter‑intuitively, that employer pays £1,411 less NI in 2026. Scale that up and the picture reverses: a 10‑person team on higher salaries will see a clear net rise once EA is exhausted. Moral: model total NI, not just the rate headline.

Assume no Apprenticeship Levy, and EA is available but applied only once per employer. Old regime refers to 13.8% rate with £9,100 ST and £5,000 EA; new regime is 15% with £5,000 ST and £10,500 EA. 1) One cleaner on £24,000: New gross employer NI = 15% × (£24,000–£5,000) = £2,850. Old = 13.8% × (£24,000–£9,100) = £2,056.20. Increase £793.80. With EA: both old and new cash NI = £0, because EA covers it. If you are a director‑only company, you cannot claim EA, so you bear the full £2,850. 2) One barista on £26,000: New = 15% × £21,000 = £3,150. Old = 13.8% × £16,900 = £2,332.20. Increase £817.80. With EA: £0 in both regimes if unused. 3) One PAYE designer on £45,000: New = 15% × £40,000 = £6,000. Old = 13.8% × £35,900 = £4,954.20. Increase £1,045.80. With EA: £0 in both regimes if unused. 4) Ten‑person SaaS team on £55,000 average: New per head = 15% × £50,000 = £7,500; team total £75,000. Old per head = 13.8% × £45,900 = £6,334.20; team total £63,342. Net increase before EA = £11,658. After EA (old £5,000 vs new £10,500): 2024 cash NI ≈ £58,342; 2026 cash NI ≈ £64,500. Net rise £6,158, or £616 per head.

EA is claimed via your Employer Payment Summary (EPS) under RTI. In 2026 it remains £10,500 per employer, per tax year, and set against Class 1 secondary (and Class 1A/1B) liabilities. It cannot generate a cash repayment; it only reduces PAYE/NI you would otherwise pay. You cannot claim if you are the only employee and a director—director‑only payrolls are still excluded. If you run multiple entities that are “connected” at the start of the tax year (broadly, under CTA 2010 s.1122 control tests), only one can claim, and you must decide which. The 2025 removal of the “£100,000 of prior‑year Class 1 NI” cap brings many mid‑sized employers back into eligibility. Charities and CASCs remain eligible. Post‑Brexit, EA operates within the UK’s Subsidy Control Act 2022 framework rather than EU state‑aid de minimis, but the practical upshot for most small employers is unchanged: track your claim, nominate the correct PAYE reference, and expect HMRC to offset it month by month until the £10,500 is used.

Monthly PAYE/NICs are due by the 22nd of the following month if you pay electronically (19th by post). Small employers with average monthly PAYE+NI under £1,500 can apply to pay quarterly. EA is applied pro‑rata across the year as your payroll software computes liabilities, but if you start your claim later in the year HMRC will retrospectively offset back to 6 April and create a credit on your business tax account. Class 1A NI on benefits in kind (including EVs) is payable annually by 19/22 July after the tax year, using form P11D(b). The 15% rate now also sets your Class 1A bill. Cash‑flow point: the lower ST to £5,000 accelerates NI into earlier months for seasonal or part‑time staff; expect higher monthly outflows from April to June compared with prior years. If you are near the £3m pay‑bill threshold, remember the Apprenticeship Levy is calculated cumulatively through the year: exceed it and your EPS must start accounting for 0.5% less the £15,000 allowance.

Employer NI attaches to employment, not to your legal form. Sole traders and partnerships do not pay employer NI on their own drawings but do pay 15% Class 1 secondary on any staff they employ. Companies pay it on staff and directors. Director NICs are assessed on an annual earnings period; this matters for thresholds if you pay irregularly. Charities and CASCs can claim EA; public bodies generally cannot. Owner‑managed companies with a single director and no other employees cannot claim EA, so a salary above £5,000 now attracts 15% employer NI from pound one over the ST. Where you engage contractors via personal service companies, consider off‑payroll working rules: if you are “small” under Companies Act 2006 s.382 (meet two of: turnover ≤£10.2m, balance sheet total ≤£5.1m, ≤50 employees), IR35 status remains the contractor’s responsibility; if you are medium/large, the liability sits with you and “deemed employment” triggers PAYE and employer NI.

In 2026, each £1 of NI‑able pay above £5,000 costs an extra 15p to the employer, plus 3%+ for statutory pension contributions on qualifying earnings, rising holiday pay, and any EL insurance loading. In trades anchored to the National Living Wage, the ST cut hurts. A full‑time worker on £24,000 now drags £2,850 of employer NI (vs £2,056.20 before), a 39% increase. For hourly pricing, your on‑cost factor for non‑tipped hospitality roles with high churn should be reset: for every £1.00 of gross wage, budget ~£0.18–£0.22 on top once you add 15% NI on earnings above the ST, 3% pension, and EL insurance. For higher‑paid staff, the NI on‑cost caps only at the point total salary ends, since there is no upper earnings limit for employer NI. Your room to absorb depends on gross margin; owner‑operators with sub‑10% EBITDA should model whether to re‑price or reduce hours.

Salary sacrifice remains the cleanest way to swerve 15% employer NI and cut employees’ tax/NIC. You change contracts to reduce cash pay and increase the employer pension contribution by the same amount (or more, using your NI saving). Compliance: never drop cash pay below National Minimum/Living Wage for hours actually worked; maintain auto‑enrolment duties under Pensions Act 2008. Numbers: a £45,000 designer sacrificing 5% (£2,250) saves the employer 15% × £2,250 = £337.50 NI. The employee (assuming basic‑rate for simplicity) saves 20% income tax (£450) and primary Class 1 NI on that slice. You can share the employer saving—common practice is a 50/50 split as an extra pension top‑up. For lower‑paid staff, sacrifice is constrained by NMW; operate a “notional” sacrifice where needed so the legal floor is respected. HMRC’s guidance still recognises sacrifice when contractually varied before the work is done; payroll software supports this natively.

Electric company cars retain ultra‑low Benefit‑in‑Kind (BIK) through 2028. The BIK on zero‑emission cars steps from 2% to 3% in 2025/26, then 4% in 2026/27, and 5% in 2027/28. For salary sacrifice EVs, the employee gives up gross pay (saving income tax/NI), the employer avoids 15% NI on the sacrificed amount and pays Class 1A NI at 15% on the small BIK. Example: a £45,000‑list EV on a £600/month gross sacrifice (£7,200/year). Employer saves 15% × £7,200 = £1,080; pays Class 1A on BIK of 3% × £45,000 = £1,350 × 15% = £202.50. Net employer saving ≈ £877.50, plus potential secondary savings (lower mileage claims, staff retention). The employee is taxed only on the BIK (£1,350 at 20% = £270), not the lease cost. As BIK steps to 4% then 5%, employer Class 1A rises modestly, but the salary‑side 15% saving remains dominant. Use FCA‑authorised providers (e.g., Tusker, Octopus EV) and ensure P11D reporting is watertight.

Dividends do not attract employer NI, so the classic approach—low salary, high dividends—survives. But the fatter EA reshapes the optimum where you employ staff. If you can claim EA, it will cover the first £10,500 of employer NI across your payroll. With an ST at £5,000 and a 15% rate, one employee could, in theory, earn up to ~£75,000 before you pay any employer NI (since 15% × (£75,000–£5,000) = £10,500), though in practice EA is shared across staff. For a sole director with no other employees, EA is still unavailable: paying a £12,570 salary now triggers employer NI of 15% × (£12,570–£5,000) = £1,135.50, which you avoid by setting salary at or near £5,000 and taking the rest as dividends. Dividend tax in 2026 continues at 8.75%/33.75%/39.35% for basic/higher/additional bands, with the £500 dividend allowance retained; corporation tax at 19%/25% still frames how much post‑tax profit is available. Run the numbers annually; HMRC’s Director’s NICs annual calculation can produce counter‑intuitive mid‑year spikes if you pay irregularly.

You cannot offset employer NI directly with corporation tax reliefs, but cash saved elsewhere buys you payroll headroom. From April 2024, HMRC runs a merged R&D scheme: a taxable above‑the‑line credit at 20% of qualifying costs, which at a 25% corporation tax rate gives a net benefit of roughly 15%. Loss‑making “R&D‑intensive” SMEs (meeting the 30% intensity test) can still access a payable credit at an effective 26.97%. Staff costs, EPWs and certain NICs can be qualifying expenditure—so the more you spend on eligible R&D payroll, the larger your credit. Timing: claims are made via the CT600 within two years of the period end; cash realisation is months after, so do not rely on it for in‑year NI cash flow. Beyond R&D, review the Employment Allowance interaction with Class 1A (benefits) and trivial benefit exemptions; check VAT recovery on EV leases and charging (FCA‑regulated financing may change who is the taxable person). None of these erase the 15%, but together they can absorb multiple headcount‑months.

Hiring a contractor via a personal service company avoids employer NI if the engagement is genuinely outside IR35. For small private companies (Companies Act 2006 s.382), IR35 status remains with the contractor; for medium/large, off‑payroll rules (ITEPA 2003, Part 2 Ch 10) make you the “deemed employer” if inside IR35, and you then pay employer NI anyway. Compare costs: a £55,000 FTE costs you £55,000 + ~£7,500 employer NI = £62,500 before pension, holidays and EL insurance. A contractor at £400/day for 220 days is £88,000 with no employer NI, but you pay no holidays and can flex hours. The premium you can afford is therefore roughly the avoided on‑cost plus flexibility value. Beware misclassification risk: HMRC can assess arrears of PAYE/NI with interest and penalties. Use CEST as a sense‑check but get contract terms and working practices right. For recurring, long‑term roles that are business‑critical, the FTE often remains cheaper even at 15% once you model churn, scope creep and contractor mark‑ups.

The political message was rate‑rise plus EA increase; the practical pain is the ST cut to £5,000. Part‑time and seasonal workers cross the threshold earlier in the year, so you remit 15% on more hours. A hospitality operator with four baristas on £26,000 FTE equivalents but variable hours will see NI accrue steadily from month one rather than after hitting the old £9,100 annualised mark. For roles close to National Living Wage, salary sacrifice is often constrained by NMW rules, so the pension‑sacrifice lever is shorter. Your real choices are scheduling (fewer hours, more automation), re‑pricing (menu engineering, surcharges) or multi‑skilling to drive revenue per labour hour. Model breakeven by adding £0.15 NI plus ~£0.03 pension per £1 of pay over £5,000 annualised; then layer on holiday pay and sickness cover. The EA cushions the blow for micro‑teams; once it’s used, every extra shift is 18p–22p dearer per £1 of gross wage.

The consensus from ICAEW/CIOT members we spoke to is pragmatic. First, claim EA on day one of the tax year through your EPS and map which connected entity gets it. Second, run a headcount‑weighted NI forecast: when does EA run out, month by month? Third, implement pension salary sacrifice across eligible staff with an explicit policy on sharing the employer NI saving (e.g., 50% uplift to the pension contribution). Fourth, review company car policy: default to EV salary sacrifice for eligible roles; audit P11D processes. Fifth, re‑cut owner‑director remuneration: if you can’t claim EA (director‑only), hold salary at or near £5,000 and use dividends; if you can, consider nudging salaries higher to secure pension credits and smooth cash flow, within EA cover. Sixth, test contractor vs employee for new roles with a documented IR35 assessment. Finally, sanity‑check PAYE payment frequency—quarterly easements improve cash flow for very small employers. None of this is heroic; it’s the quiet arithmetic that pays for a hire.

Employer NI changes do not alter employee take‑home. But you still need to communicate total reward and your on‑cost. These snapshots show employer cost vs employee net headline, using round‑number assumptions for illustrative clarity and excluding student loans/other deductions. Cleaner at £24,000: Employee take‑home unchanged by employer NI. Employer pays £2,850 NI (before EA). Total employer cost ≈ £26,850 plus pension. Barista at £26,000: Employer NI £3,150 (before EA). Total employer cost ≈ £29,150 plus pension. Designer at £45,000: Employer NI £6,000 (before EA). Total employer cost ≈ £51,000 plus pension and benefits. SaaS staff at £55,000: Employer NI £7,500 per head (before EA). Total employer cost ≈ £62,500 per head. Use these in offer letters and pricing. If you apply pension salary sacrifice, reduce the employer NI by 15% of the sacrificed amount and remember Class 1A at 15% on any benefits in kind.