2025 Employer National Insurance: Impact & Cost Calculator

2025 brought the most substantial changes to the National Insurance Contributions (NIC) system in recent memory, with a sharp rate increase and a lower eligibility threshold.

Whether you’re a big or small company, your UK operations will be impacted. You’re likely wondering what these changes mean for your financial management, hiring plans, and compliance.

You’re in the right place! Deel’s team of experts has developed an Employee Cost Calculator, so you understand how much you’re expected to pay under the new rules and the financial impact on your business.

As one of the leading providers of HR, payroll, and hiring compliance in the UK, Deel also offers some tips on how to prepare your business for changes to the NIC system. We explore who’s affected by the new rules, what to expect, and which solutions are available.

How are the UK’s national insurance contributions changing in 2025?

Effective from 6 April 2025, the UK government made three significant updates to the National Insurance system:

1. The employer rate rose from 13.8% to 15%. This applies to any Class 1 contributions on earnings, C1A contributions on benefits, and Class 1B contributions on PAYE Settlement Agreements (PSAs)

2. The lower earnings limit for UK employers (the secondary threshold) decreased from £9,100 to £5,000 per year. The drop means you must start paying contributions sooner for staff and on a greater percentage of their gross salary

3. Employment Allowance increased from £5000 to £10,500 and applies to more businesses. This rule lets qualifying employers offset more of their NIC in the 2025/26 tax period

The good news is that the primary threshold has remained the same. Employees still only pay for earnings over £542 a month, meaning their take-home pay is unaffected. This also makes it easier to apply NIC updates as you have less paperwork to do and fewer people to inform than you would otherwise.

What do these changes mean for UK employers?

All UK businesses can expect payroll costs to increase due to these updates. While Employment Allowance offsets some of the expense, it doesn’t cancel out the higher NIC rate or the new secondary threshold.

For example, suppose you have 20 employees on an average UK salary of £30,000 per year. You can still expect your NIC to increase by more than £10,000 between the two tax periods.

UK companies of all sizes are likely to feel the impact. Small businesses are more likely to employ part-time staff, so they’ll find more of their workforce exceeds the secondary threshold, increasing their overall contributions. Whereas large organizations will see their payroll expenses rise sharply with every new hire or pay raise, as the Employment Allowance has increasingly less impact.

Many organizations are also likely to have concerns about payroll compliance. Government updates tend to cause confusion and disrupt processes, increasing the risk of costly errors. The penalties for late NIC are substantial, with His Majesty’s Revenue and Customs (HMRC) charging you up to 4% of the amount due plus daily interest.

Calculating National Insurance with the Deel Employee Cost Calculator

Deel has a free employee cost calculator that estimates total payroll costs based on salary. Just select ‘United Kingdom’ from the drop-down menu and enter your team member’s total compensation to get a full breakdown, including your new employer contributions.

Here are a few tips to make the most of the calculator:

• You can filter by month to estimate your regular outgoings and by year to get an idea of the overall payroll expense
• The tool lets you add a second location for a side-by-side comparison — helpful if you’re deciding where to relocate an employee
• If you want to share the report with a remote co-worker, you can send the breakdown as an email

And don’t worry about whether the information is up-to-date. Deel stays continuously up to date with payroll rules like the current National Insurance rate.

How can you prepare your UK operations for changes to NIC?

The UK government revises NIC rules and rates every year. While they usually only make small adjustments, sometimes they can apply larger changes, like in April 2025.

Here are some tips on how to keep pace with UK laws and adjust your payroll process quickly:

Continuously review UK laws and update payroll processes

Keeping UK operations aligned with laws ensures payments are accurate and prevents non-compliance. The best way to handle this is through payroll automation, which removes all chance of human error.

Leading payroll solutions like Deel continuously review UK laws and update your business ahead of time. Where there’s a choice of what to do, our local experts can advise you on the best approach.

Deel also automatically adjusts payroll processes based on the latest requirements. Our software then calculates earnings and NIC, deducts them from wages, and sends them to HRMC every month. International teams can check this via Deel’s centralized dashboard so HQ and payroll departments never lose track of what’s happening.

Model different hiring scenarios using Deel’s Employee Cost Calculator

Unexpectedly high NIC rates may reduce your hiring budget for the next tax year. To see what’s possible, use Deel’s Employee Cost Calculator to estimate the total cost of adding new team members with different salaries.

For example, your UK team might be planning to recruit a new sales lead. NIC rates might put an experienced hire out of reach, but you may discover that a recent graduate on an entry-level salary is affordable.

Alternatively, you might be deciding where to relocate someone to manage customers in European time zones. You can use the calculator to compare countries. You might even discover that the UK is still the most affordable option out of all the places you’re considering.

Check your eligibility for Employment Allowance

Employment Allowance gives you up to £10,500 credit against your payments in a single tax year. To qualify, you must:

• Be officially incorporated in the UK
• Conduct less than half of your work in the public sector
• Only claim the allowance against one payroll (if you have multiple)

HMRC doesn’t automatically deduct the £10,500 from your tax bill. You must claim the Employment Allowance every year through your Real Time Information (RTI) submissions.

Simplify calculations with PSAs

PSAs let you make a single payment during the tax year for all NIC based on minor, irregular, or impracticable benefits. This makes administration easier as you don’t have to manage monthly transfers for unpredictable amounts.

Any UK business can apply for PSAs. However, you may find the employee benefits and expenses you typically manage aren’t eligible. GOV.UK has a small list to give you an idea of what you can include, such as telephone bills, bonuses for hitting a milestone, and employee relocations.

Also, bear in mind that PSAs require the employer to take responsibility for the employee’s share of the tax. You can improve morale and simplify payments, but you increase your company’s expenses.

Consider an Employer of Record (EOR) to maintain compliance

An EOR hires all your UK-based employees and handles HR, payroll, and compliance on your behalf. This includes calculating and reporting on NIC and keeping updated with the rules. As the provider provides all the expertise and absorbs all the legal liability, your company doesn’t have to worry about non-compliance.

While the EOR is the de facto employer, you retain total control and oversight of your workforce. For example, you still decide their responsibilities and assign all their tasks.

Providers like Deel EOR are ideal for dispersed, international teams. Our solution connects with your global payroll so you can still manage payments and taxes in one place, whether you’re using owned entities or EORS in each location. We also provide a Contractor of Record (CoR) service so you can include all your freelancers under the same umbrella.

Stay ahead of regulatory changes with Deel Payroll

NIC is just one of many compliance tasks that can change from year to year. To stay on top of these challenges, businesses need a solution to automate UK payroll and help them navigate regulatory updates.

Deel Payroll can take care of your UK payroll processes and connect with your international operations. Our compliance-first solution ensures everything is up to date with local laws and accurate to prevent non-compliance.

Dispersed teams managing UK operations from abroad can also take advantage of Deel EOR. This capability means we manage HR, payroll, and compliance as the legal employer on paper. Deel EOR encompasses everything from compliant contract creation and background checks to ongoing document management.

Want a tighter grasp on your UK payroll operations? Book a demo with the Deel team to learn more about how we can support you.