NATIONAL INSURANCE · 2026/27
The Tax Your Employer Pays That You Have Never Seen
Employer NI is 15% of your salary, paid directly to HMRC, never shown on your payslip. Understanding it changes how you read your employment.
8 min read · Updated June 2026
There is a tax that your employer pays on your behalf that never appears on your payslip, is never deducted from your pay, and is paid directly to HMRC without passing through your hands at all. Most employees have no idea it exists.
It is called Employer National Insurance. And understanding it explains several things about employment that would otherwise be puzzling: why employers are so enthusiastic about salary sacrifice, why total employment costs differ so substantially from headline salaries, and why the economics of self-employment and employment are not always what they appear.
Your employer pays 15% of your salary to HMRC before you ever see it. It never touches your payslip. But it shapes almost every employment decision your employer makes.
What Employer NI Is
Employer National Insurance — formally Class 1 Secondary Contributions — is charged at 15% on employee earnings above £5,000 per year. Your employer pays it. You do not.
On a £40,000 salary: (£40,000 − £5,000) × 15% = £5,250 per year.
Your employer’s total cost of employing you at £40,000 is not £40,000. It is £45,250 — before pension contributions, before any other benefits, before the cost of managing your employment at all. When your employer thinks about the cost of hiring someone, they think about this number. When they think about whether they can afford a pay rise, they think about this number. It is the number you never see but that shapes the employment relationship throughout.
Why It Matters to You
It explains salary sacrifice. When you sacrifice salary into a pension, your contractual salary falls. Your employer’s Employer NI bill falls with it — 15% of whatever you sacrificed. On a £5,000 annual sacrifice, that is £750 that HMRC no longer receives from your employer’s payroll. What happens to that £750 depends on your employer’s policy. Some keep it. Many pass it on as an additional pension contribution. If yours does, your £5,000 sacrifice generates £5,750 in pension contributions — the £5,000 you sacrificed, plus your employer’s £750 NI saving.
It changes salary negotiations. When your employer offers you a £1,000 pay rise, the cost to them is not £1,000. It is £1,150 — the £1,000 salary increase plus £150 in additional Employer NI. A £10,000 salary increase costs the employer £11,500. Understanding this does not necessarily change what you ask for, but it does change the context in which the negotiation happens.
It affects the self-employment comparison. A self-employed person does not pay Employer NI. They pay Class 4 NI on profits at 6% between £12,570 and £50,270, and 2% above. The comparison between employed and self-employed tax burdens is genuinely complex — the self-employed lose the employer’s pension contribution and certain benefits, but they avoid the 15% Employer NI. The net position depends on the specific earnings level and arrangement.
The April 2025 Increase
The rate and threshold for Employer NI changed significantly in April 2025. The rate increased from 13.8% to 15%. The Secondary Threshold — the point above which the charge applies — fell from £9,100 to £5,000.
The combined effect of a higher rate and a lower threshold was a substantial increase in employer payroll costs. A business employing ten people at £35,000 each saw its Employer NI bill increase by approximately £15,000 per year overnight.
The government increased the Employment Allowance — which allows smaller businesses to reduce their Employer NI bill — to £10,500 as partial mitigation. But for larger employers and those above the threshold, the increase was unavoidable.
One visible consequence: the expansion of salary sacrifice schemes. When an employer’s payroll costs increase by 15% on every pound of new salary, the incentive to offer arrangements that reduce the NI-able payroll grows proportionally. The April 2025 change made salary sacrifice more attractive for employers as well as employees, which is reflected in the growing number of schemes being offered.
The Bottom Line
Important: This article is for informational purposes only and does not constitute financial or tax advice. Based on 2026/27 HMRC rates which are subject to change. Individual circumstances vary. Seek independent advice from a qualified financial adviser before making any financial decisions. When you invest, your capital is at risk. WageLab is not FCA regulated.
Use the WageLab calculator to see how these tax rules apply to your specific circumstances.
WageLab is not FCA regulated and does not provide financial advice. This article is for informational purposes only. Full article content coming soon.