The short answer
Employer National Insurance is 15% of pay above £5,000 a year. Add the minimum 3% pension contribution and a £30,000 employee costs about £34,463 a year, roughly 15% more than their salary.
| Salary | Employer NI | Pension | Total cost | On top of salary |
|---|---|---|---|---|
| £12,570 | £1,136 | £190 | £13,895 | 10.5% |
| £20,000 | £2,250 | £413 | £22,663 | 13.3% |
| £30,000 | £3,750 | £713 | £34,463 | 14.9% |
| £40,000 | £5,250 | £1,013 | £46,263 | 15.7% |
| £50,000 | £6,750 | £1,313 | £58,063 | 16.1% |
| £75,000 | £10,500 | £1,321 | £86,821 | 15.8% |
How employer NI is worked out
Employer, or secondary Class 1, National Insurance is charged on each employee’s earnings above the secondary threshold. Payroll works it out each pay period:
| Pay period | Threshold | Rate above it |
|---|---|---|
| Weekly | £96 | 15% |
| Monthly | £417 | 15% |
| Yearly | £5,000 | 15% |
- Salary£30,000
- Less the secondary threshold−£5,000
- Earnings above it£25,000
Unlike employee NI, there is no upper limit: employer NI is 15% on every pound above £5,000, however high the pay. It is paid to HMRC with PAYE each month, and it is an allowable business expense.
What changed in April 2025
From 6 April 2025, three changes raised the cost of most employees, and all three continue in 2026/27:
- Rate
- 13.8%
- Threshold
- £9,100
- Employment Allowance
- £5,000
- NI on £30,000
- £2,884
- Rate
- 15%
- Threshold
- £5,000
- Employment Allowance
- £10,500
- NI on £30,000
- £3,750
The lower threshold hit part-time and lower-paid staff hardest in percentage terms. Employer NI on a £20,000 salary rose from £1,504 to £2,250. The larger Employment Allowance offsets this for many small employers.
The Employment Allowance
The Employment Allowance reduces your employer NI bill by up to £10,500 a year. It is claimed through your payroll software and used up against your employer NI each month until it runs out.
- Employer NI: 4 × £3,750£15,000
- Employment Allowance−£10,500
- Employer NI to pay£4,500
Most employers can claim it. The main exceptions are:
- a company whose only employee paid above the secondary threshold is a single director;
- public bodies and businesses doing more than half their work in the public sector, with some exceptions;
- employers of care or support workers in their own home, unless the worker provides personal care.
Since April 2025 there is no limit on the size of employer that can claim. For a small business, the allowance covers employer NI on roughly £75,000 of pay for one employee, or on two salaries of £40,000 between them.
Under-21s and apprentices
Employers pay no employer NI on earnings up to £50,270 a year for employees under 21, and for apprentices under 25 on an approved apprenticeship. Above £50,270, the usual 15% applies.
Payroll applies the relief automatically through the employee’s NI category letter. For apprentices you need evidence of the apprenticeship, such as the written agreement.
Workplace pensions
Under automatic enrolment, you must put employees aged 22 to State Pension age who earn over £10,000 a year into a workplace pension. The minimum total contribution is 8% of qualifying earnings, with at least 3% from you.
| Threshold | Amount |
|---|---|
| Earnings trigger for automatic enrolment | £10,000 |
| Qualifying earnings: lower limit | £6,240 |
| Qualifying earnings: upper limit | £50,270 |
On a £30,000 salary, qualifying earnings are £23,760, so the 3% minimum is £712.80. Many employers pay more, or pay on full salary: 5% of the full £30,000 is £1,500. Employer pension contributions carry no National Insurance and are an allowable business expense.
Salary sacrifice
With salary sacrifice, an employee gives up part of their salary and the employer pays the same amount into their pension. Because the sacrificed pay is no longer earnings, neither side pays NI on it.
- Salary sacrificed£2,000
- Employer NI saved: 15% of £2,000£300
- Employee NI saved: 8% of £2,000£160
Some employers add part or all of their NI saving to the employee’s pension. The government plans to charge NI on sacrificed pension contributions above £2,000 a year from April 2029, but nothing changes for 2026/27. Pay after a sacrifice must not fall below the National Minimum Wage.
Benefits in kind and Class 1A
Taxable benefits, such as a company car, private medical insurance or a loan at a low rate, carry Class 1A employer NI at 15% of their taxable value. It is paid once a year, by 22 July after the tax year if paid electronically.
A £5,000 benefit costs £750 in Class 1A NI on top of the benefit itself. Many employers now payroll benefits, taxing them through monthly pay instead of reporting them on a P11D; the Class 1A still applies. Electric company cars have low taxable values, which keeps Class 1A low.
The rest of the true cost
Tax and pensions are only part of what an employee costs. Budget for:
- Holiday: 5.6 weeks a year of paid leave for full-time staff. You pay for these weeks without getting the work, which matters if you need cover.
- Sick pay: Statutory Sick Pay, or more under your own policy.
- Employer’s liability insurance: a legal requirement for most employers, with a fine for each day without it.
- Recruitment and training: adverts, agency fees, induction time and courses.
- Equipment and space: a laptop, phone, desk, software licences and uniforms.
- Payroll and HR: software or a bureau to run payroll, and advice on contracts and policies.
Rule of thumb
Once all of this is included, many small businesses budget for an employee to cost 20% to 30% more than their salary. Use the calculator for the tax and pension part, which is the part that is fixed by law.
Budgeting for a new hire
- Before you advertiseSet the salary and work out the full cost
Salary, employer NI, pension and the extras above.
- Before day oneRegister as an employer with HMRC
You need a PAYE reference before the first payday, plus employer's liability insurance.
- Day oneCheck the right to work and set up payroll
Assess them for automatic enrolment from their first day.
- Each paydayRun payroll and report to HMRC
Pay PAYE and NI by the 22nd of the following month if paying electronically.
Check that the extra sales or capacity the person brings will cover their full cost. The break-even calculator helps you see how many extra sales a new salary needs.
A small team, worked through
A café employs three people: a manager on £30,000, a cook on £24,000 and a 19-year-old on £20,000. It pays the 3% minimum pension and claims the Employment Allowance.
| Employee | Salary | Employer NI | Pension |
|---|---|---|---|
| Manager | £30,000 | £3,750 | £713 |
| Cook | £24,000 | £2,850 | £533 |
| Under 21 | £20,000 | £0 | £413 |
- Salaries£74,000
- Employer NI£6,600
- Pensions£1,658
- Employment Allowance−£6,600
The allowance wipes out the whole £6,600 of employer NI, and £3,900 of it is left unused. The café could take on more staff before paying any employer NI at all.
Employing at the National Living Wage
From April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour. A full-time employee on 37.5 hours a week for 52 weeks earns £24,784.50.
- Pay£24,784.50
- Employer NI£2,967.68
- Minimum pension£556.34
- Total cost£28,308.51
Paid holiday means some of those hours are not worked, so the cost per hour actually worked is higher still. Check the minimum wage calculator for the rates at other ages.
Directors and National Insurance
Company directors pay NI on an annual earnings period rather than pay period by pay period. The company’s employer NI is worked out on their total pay for the year, so a director paid irregularly does not pay more than one paid monthly.
A company whose only employee is a single director cannot claim the Employment Allowance. If the director’s salary is £12,570, the company pays £1,135.50 of employer NI on it. The dividend vs salary calculator shows why that is usually still worth it.
Paying and reporting
Employers report pay and deductions to HMRC every payday through Real Time Information. Employer NI, employee NI and PAYE tax are paid together by the 22nd of the following month if paying electronically, or quarterly if your monthly bill is under £1,500.
Late payments and late reports can bring penalties and interest. Payroll software calculates employer NI, applies the Employment Allowance and age reliefs, and handles automatic enrolment assessments for you.
Employee, freelancer or director?
When you need help, the cost depends on how the person is engaged. Employer NI only applies to employees and directors.
- Employer NI
- 15% above £5,000
- Pension
- At least 3% if eligible
- Holiday and sick pay
- Yes
- Employment rights
- Full
- Employer NI
- None
- Pension
- None
- Holiday and sick pay
- No
- Day rate
- Usually higher
You cannot choose freely between the two. Employment status depends on how the work is actually done: who controls it, whether the person can send a substitute, and whether they are part of your business. If someone works like an employee, HMRC can treat them as one, and you could owe the employer NI and PAYE you did not deduct. HMRC’s Check Employment Status for Tax tool helps you decide, and the off-payroll rules apply when larger businesses engage contractors through their own companies.