Every founder budgeting for their next hire eventually hits the same line in the spreadsheet: employer National Insurance.
It doesn't show up in a job advert or an offer letter, but it adds hundreds, sometimes thousands, of pounds to what a new employee actually costs your business each year.
This guide breaks down how the tax works for 2026/27, what the employer NI threshold means for your payroll, Employment Allowance eligibility, and the true cost of hiring an employee once everything is accounted for.
What Is Employer National Insurance?
Employer National Insurance is a tax UK businesses generally pay on top of staff salaries. For most standard employees in 2026/27, the employer Class 1 National Insurance rate is 15% on eligible earnings above the £5,000 Secondary Threshold.
Unlike the National Insurance deducted from an employee's payslip, this is a direct cost to the business: it does not reduce the employee's take-home pay. Also known as secondary Class 1 National Insurance, it is generally paid by employers on eligible employees' earnings above the applicable threshold.
Related employer charges include Class 1A National Insurance on most benefits in kind and Class 1B on PAYE Settlement Agreements, both charged at 15% for 2026/27.
For a growing startup, this cost is rarely trivial. It scales with headcount and salary, which means the bill for your third hire looks nothing like the bill for your tenth. Understanding how it's calculated, and where the reliefs sit, is the difference between a hiring plan that holds up and one that quietly eats your runway.
The Employer NI Threshold Explained
The employer National Insurance Secondary Threshold is £5,000 a year for 2026/27. For most standard employees, employers pay 15% secondary Class 1 National Insurance on earnings above this threshold.
For a standard employee paid evenly throughout the year, a useful simplified calculation is: employer National Insurance = (annual salary − £5,000) × 15%. Actual payroll calculations are based on pay periods and can vary according to the employee's National Insurance category.
An employee on £30,000 generates £3,750 a year in NI for the business (£30,000 − £5,000 = £25,000 × 15%). The standard rate and Secondary Threshold are unchanged from 2025/26, holding steady into the new tax year (GOV.UK/HMRC, "Rates and thresholds for employers 2026 to 2027").
It wasn't always this tight. Before April 2025, the threshold sat at £9,100 and the rate at 13.8%. The Autumn Budget 2024 cut the threshold to £5,000 and lifted the rate to 15%, a combined change that, for an employee on £20,000, took the employer's bill from £1,504.20 in 2024/25 to £2,250 in 2025/26, an increase of £745.80 for that one hire (Institute and Faculty of Actuaries, Autumn Budget 2024 briefing; Makesworth Accountants). For a startup hiring at pace, that's not a rounding error; it's a real shift in the maths behind every offer letter.
Employment Allowance Eligibility: Can Your Startup Claim It?
A startup can generally qualify for Employment Allowance if it meets HMRC's eligibility conditions, including doing less than half its work in the public sector. A company with a single director can claim only if that director is not the only employee liable for secondary Class 1 National Insurance.
Employment Allowance eligibility also extends to charities, community amateur sports clubs, and certain employers of care or support workers.
Since April 2025, the former £100,000 cap on Class 1 National Insurance liabilities was removed, allowing larger eligible employers to claim the allowance.
Eligibility has further restrictions. Employers cannot claim Employment Allowance for certain employees whose earnings are subject to the off-payroll working rules, or for employees performing personal or domestic work unless they are carers.
If a startup is part of a group of connected companies, only one company in the group can claim, and the allowance can be used against only one payroll.
The allowance is worth up to £10,500 against an eligible employer's annual Class 1 National Insurance liability for 2026/27. It can be a significant offset for an early-stage team, but the employer has to actively claim it.
The Employment Allowance indicator must be set to "Yes" on the Employer Payment Summary when the claim is made through payroll, and the claim needs to be made for each tax year.
The True Cost of Hiring an Employee
The true cost of hiring an eligible employee includes gross salary, employer National Insurance and the minimum employer pension contribution of 3% of qualifying earnings, before any Employment Allowance is applied.
Here's how employer NI stacks up at a few common startup salary bands, using the standard 2026/27 rate and Secondary Threshold:
Add a workplace pension and the gap widens further. Under the standard qualifying-earnings basis, auto-enrolment requires employers to contribute at least 3% of qualifying earnings.
For 2026/27, the qualifying-earnings band is £6,240 to £50,270, as part of the statutory 8% total minimum contribution.
For a startup building out its first five hires at £25,000 each, the combined employer NI liability is £15,000 before Employment Allowance. If the employer is fully eligible and can use the full £10,500 allowance, the remaining Class 1 NI liability would be £4,500.
That's the real lesson behind the true cost of hiring an employee: the headline salary is only the starting point. Employer National Insurance, pension contributions and other employment costs all need to be included in the hiring budget.
How This Changes Hiring Decisions for a Growing Startup
Employer National Insurance reshapes startup budgeting because Employment Allowance can reduce an eligible employer's annual Class 1 National Insurance liability by up to £10,500. Once the allowance has been used, the employer remains responsible for the applicable Class 1 liability on the remaining earnings.
For a very early team, the allowance can make the employer NI burden substantially smaller. Five staff on £25,000 generate £15,000 in NI liability, leaving £4,500 after the full £10,500 Employment Allowance is applied, assuming the employer is fully eligible.
But growth erodes that cushion fast. Add a sixth or seventh hire, or raise salaries as you scale, and the allowance that covered a large share of the payroll at seed stage becomes a smaller proportion of total employer NI liability.
This is why founders modelling headcount plans should budget employer National Insurance into every offer from day one, not bolt it on afterwards.
A £40,000 hire generates £5,250 of employer NI. Under the standard qualifying-earnings basis, the minimum employer pension contribution would be £1,012.80, bringing the employment cost to approximately £46,262.80 before Employment Allowance, recruitment and onboarding costs.
Building that into your runway model now avoids the problem of discovering mid-raise that your actual burn rate is higher than the figure used in your original headcount plan.
FAQs
1. What is the employer National Insurance threshold?
The employer National Insurance Secondary Threshold is £5,000 a year for 2026/27. For most standard employees, employers pay 15% secondary Class 1 National Insurance on earnings above that threshold (GOV.UK/HMRC). The standard rate and threshold have remained at these levels since the April 2025 reforms.
2. Who is eligible for Employment Allowance?
Employment Allowance eligibility covers qualifying businesses and public bodies, charities, community amateur sports clubs and certain employers of care or support workers. A sole-director company can qualify only if the director is not the only employee liable for secondary Class 1 National Insurance. Since April 2025, the former £100,000 Class 1 National Insurance liability restriction has also been removed (GOV.UK).
3. How much does it really cost to hire an employee in the UK?
The true cost of hiring an eligible employee in the UK includes gross salary, employer National Insurance and the minimum employer pension contribution of 3% of qualifying earnings. For example, a £30,000 salary generates £3,750 of employer NI before Employment Allowance, while the minimum employer pension contribution under the standard qualifying-earnings basis would be £712.80.
Also Read: Share Purchase Agreement (SPA): What Founders Must Check
Sources: Figures drawn from HMRC and GOV.UK's "Rates and thresholds for employers 2026 to 2027" and "Employment Allowance" guidance, the Institute and Faculty of Actuaries' Autumn Budget 2024 briefing, and DWP-confirmed auto-enrolment thresholds for 2026/27. All figures reflect the most recent available data at the time of writing.
The EP+ Editorial Desk covers UK startups, founder stories, and venture capital. All editorial content is independently produced and human-reviewed before publication.
