Employer NI Threshold Dropped to £5,000: Why Small Business Owners Are Furious

From April 2025, employers pay National Insurance contributions on each employee’s salary once it exceeds £5,000 a year. That number used to be £9,100. The rate itself went up at the same time, from 13.8% to 15%. Between those two changes, hiring even one part-time worker has become meaningfully more expensive, and for small businesses running tight margins, it has forced real decisions about headcount.

What actually changed and when

The April 2025 Budget announced two employer NI changes that took effect together from 6 April 2025. First, the rate increased from 13.8% to 15%. Second, the secondary threshold, the point at which employer NI kicks in, was cut from £9,100 per year to £5,000.

HMRC confirmed the new rates and thresholds in its employer bulletin ahead of the April 2025 payroll year. The Employment Allowance, which offsets employer NI for eligible businesses, was increased to £10,500 at the same time. That helps smaller employers, but it doesn’t touch the structural change to what each worker costs.

Employer NI is charged on the employer, not the employee. It does not appear on a payslip. It is an additional cost on top of the salary the worker receives. An employee earning £30,000 has no idea that their employer is also paying roughly £3,750 a year in NI contributions on their behalf.

The maths of what it costs now

Take a worker on the National Living Wage, roughly £24,000 a year in 2025/26. Under the old rules, their employer paid NI on £14,900 of that salary (£24,000 minus the old £9,100 threshold) at 13.8%, coming to around £2,056 a year. Under the new rules, the employer pays NI on £19,000 at 15%, which is £2,850. That’s an increase of roughly £800 per worker on minimum wage, per year.

For a business with ten employees all on similar salaries, that’s close to £8,000 in additional costs with no change in output, no new capability, and no choice in the matter. For sectors like hospitality, retail, and social care where margins are thin and most staff are on or near minimum wage, this is not an abstract concern.

Why the threshold cut hurts more than the rate rise

The rate change gets more attention because it’s a headline number. But the threshold reduction is the more structurally damaging change for businesses with low-wage or part-time workforces.

A threshold cut is regressive in the sense that it hits lower-paid workers harder. A highly-paid employee earning £80,000 already had most of their salary exposed to the old threshold of £9,100. Cutting the threshold to £5,000 only adds £4,100 of newly-exposed salary for them. For a part-time worker earning £12,000, the old threshold shielded £9,100 of a £12,000 salary. The new threshold shields only £5,000. The proportion of their salary exposed to employer NI has gone from roughly 24% to 58%.

Small businesses that employ large numbers of part-time or low-paid workers — cafes, pubs, care homes, cleaning companies — are seeing a disproportionate impact compared to professional services firms with smaller teams on higher salaries.

The Employment Allowance: some help, not enough for everyone

The government’s main response is the increased Employment Allowance, which rose from £5,000 to £10,500 from April 2025. This allows eligible employers to reduce their total employer NI bill by up to £10,500 per year. For a small business with a modest total employer NI liability, the allowance can wipe out the increase entirely.

But the Employment Allowance is a flat offset, not a per-employee discount. Once your total employer NI bill exceeds £10,500, the allowance is exhausted and you pay the full rate on everything above it. A business with 15 employees all earning £30,000 would have an employer NI bill of around £56,000. The Employment Allowance covers £10,500 of that. The remaining £45,500 is paid in full at the new rate, on the new threshold.

Single-director companies with no other employees are also excluded from the allowance, which removes it from a significant portion of the self-employed and freelance sector who operate through limited companies.

What small business owners are actually doing about it

The Federation of Small Businesses reported in early 2025 that a significant portion of its members said they intended to reduce headcount, freeze hiring, or cut hours in response to the changes. Anecdotally, this has played out in the hospitality sector most visibly. Some employers have restructured contracts to keep more staff below the threshold, though HMRC’s guidance makes it clear that artificial salary suppression to avoid NI triggers compliance risk.

Others have accelerated the shift toward self-employed contractors, who sit outside the employer NI framework. This is not without its own risk: HMRC’s IR35 rules determine whether a contractor relationship is genuine, and misclassification carries significant penalties.

For businesses that cannot reduce headcount, salary sacrifice arrangements have become more attractive. Schemes like pension contributions, cycle to work, and EV salary sacrifice reduce the gross salary against which employer NI is calculated, effectively lowering the NI bill while giving employees a tax-efficient benefit. A business paying £6,000 a year into an employee’s pension via salary sacrifice saves 15% of that £6,000 in employer NI, which is £900 per employee per year.

What to expect next

The secondary threshold is currently frozen at £5,000 with no confirmed date for a return to the previous level. The rate of 15% is also not scheduled for review in the short term. The government’s position through the Spring 2025 spending round was that the Employment Allowance increase was the appropriate offset for smaller employers, and there has been no signal of a further concession.

For businesses planning payroll and budgets through to 2027, the £5,000 threshold and 15% rate should be treated as permanent for planning purposes until HMRC publishes otherwise.