- Employer NI rate rises from 13.8% to 15%
- Employer NI threshold drops from £9,100 to £5,000
- Employment Allowance increases from £5,000 to £10,500
While the increased Employment Allowance may help smaller employers, most businesses will still face higher costs due to the higher NI rate and lower threshold. Many are now looking at salary sacrifice as a way to offset these increases.
What Is Salary Sacrifice?
Salary sacrifice allows employees to exchange part of their gross salary for a non-cash benefit (typically pension contributions). As NI is calculated on salary, this can reduce NI bills for both employer and employee.
Worked Example: Comparing Three Scenarios
Below is an example for an employee earning £35,000 and contributing 5% (£1,750) to their pension:
| Scenario | NI Threshold | NI Rate | Gross Salary | Salary Sacrifice? | Employer NI | Change |
|---|---|---|---|---|---|---|
| 1. Now (2024/25) | £9,100 | 13.8% | £35,000 | No | £3,574.20 | N/A |
| 2. April 2025 | £5,000 | 15% | £35,000 | No | £4,500.00 | + £925.80 |
| 3. April 2025 + Salary Sacrifice | £5,000 | 15% | £33,250 | Yes (£1,750) | £4,237.50 | + £663.30 |
Without Salary Sacrifice, the higher Employer National Insurance rates cost this firm an extra £925.80 per employee in this example. Although the increased Employment Allowance will partially offset this. By introducing a Salary Sacrifice arrangement, the firm could save £262.50, and for a firm with a large number of employees, this could soon add up to a considerable saving.
The Bottom Line
Salary sacrifice is a useful tool for reducing the impact of NI increases. However, it doesn’t eliminate the rise in employer costs. Businesses still face a higher NI bill overall.
Scott Gallacher, Chartered Financial Planner at Rowley Turton, says:
“Employers are right to explore salary sacrifice as a way of easing the increased National Insurance burden, and in many cases it can be a win-win for the business and its staff. But we shouldn’t pretend it’s a magic bullet. Even with salary sacrifice in place, most employers will still be paying more than they are today. It softens the blow, yes — but it doesn’t solve the problem.”
If your business hasn’t reviewed its payroll arrangements yet before April 2025, now is the time. Consider whether salary sacrifice makes sense for your team and your budget — but also be realistic about what it can (and can’t) achieve.
Need help reviewing your strategy? Get in touch — we’re here to help.
You can download a printable factsheet version of this article here (PDF).
