2025 National Insurance Increase: How Salary Sacrifice Helps

Learn how the 2025 National Insurance increase impacts employers and why salary sacrifice pension contributions can help avoid rising payroll costs.

31 March 2025

4 min read

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Announced during the 2024 Autumn Budget, big changes are coming to employer National Insurance (NI) from April 2025 that will mean significantly higher payroll costs for many businesses.

But there’s good news: salary sacrifice pensions can help businesses soften the blow while helping employees grow their pension savings. Here’s why now is the time to consider salary sacrifice – and how Penfold can help.

What’s Changing in 2025?

Chart titled “Employer National Insurance Changes,” comparing thresholds and rates for tax years 2024/25 and 2025/26. For 2024/25, the threshold is £9,100 with a 12.8% rate. For 2025/26, the threshold decreases to £5,000, and the rate increases to 15.0%.

Let’s start with the facts – straight from HM Treasury. From 6 April 2025, businesses across the UK will face two major changes to employer National Insurance contributions, as outlined in the 2024 Autumn Statement:

The Secondary Threshold – the earnings level at which you start paying employer NI – will drop from £9,100 to £5,000.
The employer NI rate will increase from 13.8% to 15%.

These reforms are part of the government’s effort to raise an additional £25 billion a year to support public services and reduce debt. But for employers, they mean a steep rise in payroll costs – especially for businesses with larger teams.

Estimated Impact per Employee

Line graph titled “Increase in Employer National Insurance Contributions by employee earnings, 2025/26 tax year.” The x-axis shows gross earnings from £0 to £70,000, and the y-axis shows change in Employer NICs from £0 to £1,600. Key points: at £22,000 earnings (full-time minimum wage), NICs rise by £770; at £33,000 (median earnings), NICs rise by £900. The chart notes a 1.2% NIC increase and secondary threshold reduction to £5,000. Source: The Institute for Fiscal Studies.

For many businesses, these new NI requirements represent a big increase in costs:

£770 extra per year for a full-time minimum wage worker
£900 extra per year for someone on median UK earnings (~£33,000)

What It Means for Your Bottom Line

In short: you’ll be paying more NI on more of each employee’s salary – and at a higher rate. The cost impact could be thousands of pounds a year.

To help cushion this, the Employment Allowance will increase from £5,000 to £10,500 in April 2025, which will benefit some small businesses. But if your total Class 1 NI liabilities exceed £100,000 annually, this allowance doesn’t apply – so larger employers will still feel the full force of the hike.

This is where salary sacrifice comes in.

Salary Sacrifice: A Simple, Powerful Way to Save

How salary sacrifice reduces National Insurance: A comparison of salary with and without salary sacrifice. Without salary sacrifice, National Insurance is calculated on a higher amount. With salary sacrifice, pension contributions are taken before tax, reducing the salary subject to National Insurance. Promotes salary sacrifice pensions from Penfold. Website: getpenfold.com.

Salary sacrifice (also called salary exchange) allows employees to give up part of their gross salary in exchange for a non-cash benefit – like pension contributions.

Here’s why it’s a game-changer under the new rules:

Sacrificed salary is exempt from employer and employee NI
You pay less NI as an employer
Employees save on tax and NI, while their pension grows

It’s a rare win-win that’s both financially efficient and HMRC-approved.

With the upcoming NI increase, salary sacrifice provides a timely solution for businesses to manage increased NI costs while offering employees a tax-efficient way to grow their pensions.

The Numbers Speak for Themselves

Illustration comparing employer National Insurance increases in 2025 for a 10-employee business with an average £35,000 salary. A large pink circle shows a £3,800 increase without salary sacrifice pension contributions. A smaller dark blue circle shows a £1,100 increase with salary sacrifice pension contributions. The text highlights the potential savings in employer National Insurance costs through salary sacrifice arrangements.

Let’s say you’ve got 10 employees, each earning £35,000.

Without Salary Sacrifice: £3,800 extra NI to pay
With Salary Sacrifice: £1,100 extra NI to pay

That’s £2,700 saved. Every year. And that’s just one example. These savings scale with your workforce – and they only grow more valuable as NI rates rise.

Real Results

Don’t just take our word for it. One of our customers, Capital on Tap, implemented salary sacrifice with Penfold and saved over £135,000 a year in employer National Insurance contributions.

“With the rise in employer National Insurance contributions, salary sacrifice has been a game-changer for us. By implementing it early with Penfold, we’ve been able to significantly reduce our payroll costs while continuing to invest in our people with their pension.”

— Fay Sumner, Head of People, Capital on Tap

Read the Full Case Study

Your Employees Benefit Too

Salary sacrifice doesn’t just help your business. It also helps your team:

Reduces their taxable salary = less income tax and NI
Helps them stay under tax thresholds
Boosts pension contributions with no extra cost to them

It’s a tangible financial wellbeing perk, at zero cost to your employees – and minimal admin for you.

Why Acting Now Makes Sense

With the changes coming into force in April 2025, the best time to act is now. Switching to a salary sacrifice scheme means:

Your business can start saving money
You’ve got time to communicate clearly with your team
You’re ready when the new rules kick in – no last-minute stress

Penfold Makes It Easy

At Penfold, we help modern businesses turn pension saving into a strategic advantage. Our modern platform makes switching to salary sacrifice effortless:

Fully HMRC-compliant setup
Integrated with your payroll software
Simple onboarding and employee education
Ongoing support and reporting

We’re already helping hundreds of employers cut costs and boost pension engagement. Yours could be next.

Beat the 2025 NI Hike

Whether you’re switching from a traditional provider or just starting out, Penfold makes setting up a salary sacrifice workplace pension painless and powerful.

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