One of the most common conversations I have with growing business owners right now starts the same way. They know roughly what their payroll costs. They can tell me their salary bill. But when we sit down together and look at the full picture, there is often a quiet moment of realisation that the number they had in their head is quite a way short of the number on the page.
That gap has got wider over the past year, and I want to talk about why, and more importantly, what you can do with that information.
It is not just the salary
When you bring someone into your business, the salary is the starting point, not the total. On top of that you have employer National Insurance Contributions, pension obligations under auto-enrolment, and all the less visible costs that come with having a person on your team. Getting clear on the full figure is not about being pessimistic about growth. It is about making decisions from a position of genuine confidence rather than pleasant optimism.
This matters because the employer NIC calculation changed significantly from April 2025, and the effect on payroll budgets has been significant across the board.
What changed, and what it means for your payroll
The rate of employer National Insurance rose from 13.8% to 15%, and at the same time the threshold at which it kicks in dropped from £9,100 per year to £5,000. Those two things together have increased the cost of employment for most UK employers, sometimes quite substantially.
To put some numbers around it: if you employ someone on a salary of £30,000, your employer NIC bill is now £3,750 per year. Before April 2025, it was £2,883. That is nearly £900 more per employee, per year. For a team of five, that adds up quickly.
For businesses employing staff at or near the National Living Wage, which is often the case in hospitality, retail, childcare, and care work, the drop in the threshold is particularly significant. You are now paying employer NIC on earnings that previously attracted no charge at all.
None of this is cause for alarm. But it is cause for awareness, and for making sure your cashflow forecasting reflects reality.
The Employment Allowance, a relief worth checking
The good news is that most small and medium-sized businesses can claim the Employment Allowance, which reduces your employer NIC liability by up to £10,500 in the current tax year. At the 15% rate, that is a significant buffer, and for smaller employers it can eliminate the employer NIC bill entirely.
What I see regularly, though, is businesses that are entitled to it but have not set it up correctly in their payroll software or have not claimed it at all. It is not applied automatically; it needs to be actively switched on. If you are not certain yours is in place, that is well worth a conversation.
Thinking about the real cost of a new hire
If you are considering bringing someone on in the coming months, it helps to build out the full employment cost before you commit. A salary of £35,000 becomes closer to £39,500 to £40,000 once employer NIC and minimum pension contributions are included, and that is before recruitment, onboarding, or the time it takes for someone to get up to full speed.
That does not mean you should not hire. It means you should hire with clear eyes, knowing what the commitment looks like across a full year, and how it sits alongside your cashflow and growth plans.
A note on director salaries
If you run a limited company and pay yourself a combination of salary and dividends, the changes to the NIC thresholds are worth factoring into how you structure your remuneration this year. The optimal approach has shifted slightly, and it is worth looking at it in the round, salary, dividends, Corporation Tax, and Employment Allowance eligibility together, rather than in isolation.
You do not have to work this out alone
The businesses I work with that feel most in control of their payroll costs are not necessarily the ones paying the least. They are the ones who understand exactly what they are paying and why, and who have built that understanding into how they plan and price.
If your payroll budget feels like a black box, or if you have not revisited your employment costs since last spring, I would love to help you get a clearer picture. Sometimes it takes an hour together to make what felt overwhelming feel entirely manageable.
Book some time with me through my Calendly link and we can work through it together.
