Employer NIC Increase — Impact on Salary Sacrifice

From 6 April 2025, employer National Insurance Contributions increased from 13.8% to 15%, while the secondary threshold — the level at which employer NIC starts to apply — dropped from £9,100 to £5,000 per year. This dual change significantly increases the cost of employing staff and makes salary sacrifice arrangements more financially attractive than ever for both employers and employees. For every pound sacrificed, the employer saves 15p in NIC (up from 13.8p), and the employee saves their marginal NIC rate plus income tax.

The combined tax efficiency of salary sacrifice in 2025/26 is remarkable. Consider a higher-rate taxpayer earning £120,000 who sacrifices £20,000 into a pension. The employee saves 40% income tax (£8,000) and 2% employee NIC (£400) on the sacrificed amount. The employer saves 15% employer NIC (£3,000) on the same amount. If the employer passes on the NIC saving — as many now do — the total contribution to the employee's pension pot is £23,000, at a net cost to the employee of only £11,600 after tax relief. This represents an effective return of 98% on the net cost, before any investment growth.

Employers may wish to review their salary sacrifice offerings in light of the April 2025 changes. The increased NIC rate may strengthen the business case for pension sacrifice, cycle-to-work schemes, electric vehicle salary sacrifice, and other approved arrangements. For employees, it may be worth understanding whether your employer passes on the NIC savings — the shared benefit creates a potential incentive for both parties. The Employment Allowance (up to £10,500 for eligible smaller employers) can offset some of the increased NIC cost, but most high earners work for larger employers that do not qualify.