Employer National Insurance is 15% on every pound of earnings above £5,000 a year. For a director on a £12,570 salary that is £1,135.50 the company pays before the director sees anything. Two years ago the same salary cost £478.86 in employer NIC. It has more than doubled.
That change did not reverse the case for taking a salary. It did shrink the margin, and it moved the point at which the Employment Allowance stops being a footnote and starts being the single biggest variable in the calculation.
What changed, and when
The rate and threshold both moved on 6 April 2025, and both are unchanged for 2026/27. This is the second year of the new regime, not a new announcement — the change that landed on 6 April 2026 was the dividend rate rise, which pulls in the opposite direction.
| 2024/25 | 2025/26 and 2026/27 | |
|---|---|---|
| Employer (secondary) Class 1 rate | 13.8% | 15% |
| Secondary threshold | £9,100 a year | £5,000 a year |
| Employment Allowance | £5,000 | £10,500 |
The threshold cut matters more than the rate rise. Dropping the secondary threshold from £9,100 to £5,000 brought £4,100 of every salary into charge that previously was not. On a £12,570 salary:
- 2024/25: 13.8% × (£12,570 − £9,100) = £478.86
- 2026/27: 15% × (£12,570 − £5,000) = £1,135.50
An increase of £656.64, or roughly 2.4 times.
The employer NIC cost at each salary level
The £5,000 threshold is annual. Weekly it is £96 and monthly £417.
| Annual salary | Employer NIC at 15% above £5,000 | After the £10,500 Employment Allowance, if eligible |
|---|---|---|
| £5,000 (secondary threshold) | £0 | £0 |
| £6,708 (Lower Earnings Limit) | £256.20 | £0 |
| £9,000 | £600.00 | £0 |
| £12,570 (Personal Allowance) | £1,135.50 | £0 |
| £20,000 | £2,250.00 | £0 |
| £30,000 | £3,750.00 | £0 |
| £50,270 (higher rate threshold) | £6,790.50 | £0 |
| £75,000 | £10,500.00 | £0 |
The last row is not a coincidence. A single salary of £75,000 generates employer NIC of exactly £10,500 — precisely the Employment Allowance. Above that, an eligible company starts paying again.
Does salary still beat dividends?
Yes, up to the Personal Allowance. Here is the test that settles it.
Take £1 of pre-tax company profit. How much reaches the director’s bank account by each route? Corporation Tax at 19%, no Employment Allowance.
| Route for £1 of pre-tax profit | Net to the director |
|---|---|
| Salary up to £5,000, within the Personal Allowance | 100.0p |
| Salary from £5,000 to £12,570, within the Personal Allowance | 87.0p |
| Dividend covered by unused Personal Allowance or the £500 allowance | 81.0p |
| Dividend taxed at 10.75% | 72.3p |
| Salary taxed at 20% plus 8% employee NIC | 62.6p |
| Dividend taxed at 35.75% | 52.0p |
| Salary taxed at 40% plus 2% employee NIC | 50.4p |
The mechanics: £1 of pre-tax profit buys £0.8696 of gross salary plus £0.1304 of employer NIC. The whole £1 is deductible, so no Corporation Tax is paid on it. Within the Personal Allowance and below the primary threshold there is no income tax and no employee NIC either, so the director keeps 87.0p.
The dividend route pays 19% Corporation Tax first, leaving 81p, and dividend tax comes off that.
So 15% employer NIC has not made salary-up-to-the-Personal-Allowance a bad idea. It has cut the advantage over a tax-free dividend from a comfortable gap to six pence in the pound.
Where the Employment Allowance flips the answer
If the company can claim the £10,500 Employment Allowance, employer NIC on that salary is zero — and every salary row moves.
| Route for £1 of pre-tax profit | No Employment Allowance | Employment Allowance headroom available |
|---|---|---|
| Salary within the Personal Allowance, above £5,000 | 87.0p | 100.0p |
| Salary taxed at 20% plus 8% employee NIC | 62.6p | 72.0p |
| Salary taxed at 40% plus 2% employee NIC | 50.4p | 58.0p |
| Dividend at 10.75% | 72.3p | 72.3p |
| Dividend at 35.75% | 52.0p | 52.0p |
Look at the middle row. With the allowance available, salary at basic rate delivers 72.0p against a dividend’s 72.3p. They are effectively level. Without it, salary delivers 62.6p and dividends win by a distance.
At higher rate the flip is decisive: 58.0p for salary against 52.0p for a dividend. For a company with several employees and Employment Allowance headroom, paying a higher-rate director by salary rather than dividend is now the cheaper route.
Two constraints on that. The allowance is capped at £10,500 across the whole payroll, so the marginal employer NIC rate is only zero while headroom remains — once the allowance is exhausted, the left-hand column applies again. And the company has to be eligible in the first place.
Most single-director companies are not. HMRC’s rule is that a limited company cannot claim the Employment Allowance where it has just one director and that director is the only employee liable for secondary Class 1 National Insurance. That exclusion also catches companies with several employees where the director is the only person paid above the secondary threshold.
The crossover most calculators miss
There is a second flip, and it has nothing to do with the Employment Allowance.
Compare higher-rate extraction. Salary at 40% plus 2% employee NIC delivers 50.4p per £1 of pre-tax profit, and that figure does not move with the Corporation Tax rate — salary is fully deductible either way. A dividend at 35.75% does move with it, because the profit bears Corporation Tax first.
| Company’s Corporation Tax rate on the marginal profit | Dividend at 35.75% | Salary at 40% + 2% |
|---|---|---|
| 19% (profits up to £50,000) | 52.0p | 50.4p |
| 25% (profits above £250,000) | 48.2p | 50.4p |
| 26.5% (Marginal Relief band, £50,000 to £250,000) | 47.2p | 50.4p |
The crossover is at a Corporation Tax rate of about 21.5%. Below that, higher-rate dividends win. Above it, higher-rate salary wins.
That means a company sitting in the Marginal Relief band — profits between £50,000 and £250,000, where the effective marginal rate is 26.5% — is better off paying higher-rate extraction as salary than as dividends, before the Employment Allowance is even considered. The 6 April 2026 dividend rise moved that crossover down from about 23.9%, widening the range of companies it affects.
This does not make salary better overall for those companies. Below the Personal Allowance and through the basic rate band dividends remain cheaper. It applies specifically at the margin, on the slice of extraction that would fall into the higher rate.
What this means in practice
- The salary up to the Personal Allowance still works, for single-director companies, even at 15% employer NIC with no Employment Allowance. It is closer than it was.
- Check your Employment Allowance position every April. It is the single biggest variable, worth up to £10,500 a year, and a company can move in or out of eligibility without anyone noticing.
- If you are in the Marginal Relief band and extracting at higher rate, run the numbers on salary rather than assuming dividends. The 2026 dividend rise changed that answer.
- Employer NIC is deductible. The 15% is not a flat cost — it reduces taxable profit alongside the salary itself, and the pence-per-pound tables above already reflect that.
Frequently asked questions
How much is employer National Insurance in 2026/27?
15% on earnings above the secondary threshold of £5,000 a year — £96 a week or £417 a month. The rate and threshold have been at those levels since 6 April 2025 and are unchanged for 2026/27. Class 1A National Insurance on benefits in kind is also 15%.
How much employer NI is due on a £12,570 director salary?
£1,135.50 — 15% of the £7,570 above the £5,000 secondary threshold. In 2024/25 the same salary cost £478.86, when the rate was 13.8% and the threshold was £9,100. If the company can claim the Employment Allowance, the £10,500 covers it in full.
Does employer National Insurance at 15% make dividends better than salary?
Not below the Personal Allowance. A salary between £5,000 and £12,570 still delivers about 87p of every £1 of pre-tax profit to the director, against 81p for a tax-free dividend and 72.3p for one taxed at 10.75%. Above the Personal Allowance dividends are cheaper, unless the company has Employment Allowance headroom.
Can my company avoid employer National Insurance on the director’s salary?
Only by keeping the salary at or below the £5,000 secondary threshold, or by qualifying for the £10,500 Employment Allowance. A limited company cannot claim that allowance where it has one director who is the only employee liable for secondary Class 1 National Insurance — which excludes most single-director companies.
At what salary does employer NI use up the whole Employment Allowance?
£75,000. Employer National Insurance at 15% on the £70,000 above the £5,000 secondary threshold is exactly £10,500. Above that, an eligible company starts paying employer National Insurance again on the excess.
Getting the payroll right at 15%
Employer National Insurance is calculated and reported on every payroll run, not once a year, and the Employment Allowance is a single indicator field that has to be set correctly each April. Both are easy to get wrong quietly — either paying National Insurance you did not owe, or claiming an allowance you were never entitled to.
SmartFiling runs RTI payroll from £15 per employee per month, including auto-enrolment, payslips, P60s and year-end returns. Every client’s work is reviewed by an ICAEW Chartered Accountant, and the whole process is online.
