From April 2025, Employer National Insurance rose to 15% on earnings above £5,000 (down from the previous £9,100 secondary threshold). For a business with five employees on £32,000 salaries, this change alone costs approximately £4,500 more per year — with no change in output. Here is how to calculate your exact additional cost and what you can do about it.
What Actually Changed in April 2025?
Two changes came into effect simultaneously, and together they are more painful than either one alone:
- The rate increased from 13.8% to 15%
- The secondary threshold fell from £9,100 to £5,000 — meaning you start paying NI on a lower portion of earnings
The Employment Allowance increased to £10,500 — offering some relief for smaller employers. But businesses whose total annual Employer NI bill exceeds that amount receive no relief on the excess.
The Real Numbers — Worked Examples
Example 1: One employee on £30,000
Previous NI: (£30,000 − £9,100) × 13.8% = £2,884
New NI: (£30,000 − £5,000) × 15% = £3,750
Increase: £866 per year for this one employee.
Example 2: Ten employees averaging £35,000
Previous total NI: 10 × (£35,000 − £9,100) × 13.8% = £35,742
New total NI: 10 × (£35,000 − £5,000) × 15% = £45,000
Increase: £9,258 per year — before accounting for any other cost changes.
Example 3: A London SME with 25 employees averaging £42,000
New Employer NI: 25 × (£42,000 − £5,000) × 15% = £138,750 per year
Less Employment Allowance: £10,500
Net NI bill: £128,250 per year — compared to approximately £100,000 under the previous regime.
Increase: ~£28,000 per year.
Why This Is Particularly Painful for SMEs
Large businesses can absorb NI increases across a wider revenue base, negotiate better commercial terms, and pass costs through to customers. SMEs — particularly those in professional services, retail, or hospitality — have fewer levers to pull. Many are already operating on thin margins and cannot simply absorb an additional £10,000–£30,000 in employment costs.
The NI change is not a one-off. It compounds every year, on every new hire, with no offsetting productivity gain.
What Can You Do About It?
Option 1: Absorb it
For some businesses, this is the only realistic option. But it is worth modelling the exact cost first — many business owners we speak to are surprised by how large the annual figure is once all employees are included.
Option 2: Structure new hires offshore
Remote professionals engaged via VLS Sourcing's EOR model are employed in India — not in the UK. Employer NI applies to UK employment relationships. When you pay VLS Sourcing a service fee, you are paying a B2B invoice — no Employer NI applies. For eligible roles (admin, finance, customer support, IT, HR), this can reduce the cost of a new hire by 70% or more.
Option 3: Review your use of contractors
Contractors engaged correctly (outside IR35, via genuine B2B relationships) do not attract Employer NI. However, the IR35 rules require careful compliance — a wrongly categorised contractor engagement creates significant tax liability. See our IR35 guide for UK SMEs.
Quick Calculator
To estimate your additional annual NI cost:
- Take each employee's annual salary
- Subtract £5,000 from each
- Multiply by 15%
- Sum across all employees
- Subtract Employment Allowance (£10,500) if you are eligible
For a more detailed calculation or to understand how offshore staffing could offset this cost, get in touch — we can model the exact figures for your headcount and roles.
Want to see what you could save with VLS Sourcing?
Use our NI Savings Calculator or book a free call for a personalised cost comparison.
Get a Custom Quote in £ →Published by VLS Sourcing UK. This article is general guidance only and does not constitute legal, tax, or financial advice. Always seek independent professional advice for your specific situation.