The employer National Insurance rise landed in April 2025, and over a year on I am still meeting founders who have not properly worked out what it costs them per head. Everyone remembers the rate went from 13.8 percent to 15 percent and shrugs, because 1.2 percentage points sounds like nothing. It is the other change, the one nobody talks about, that actually hurts. The threshold at which you start paying National Insurance on an employee dropped from £9,100 a year to £5,000. That is the change that quietly makes every single hire more expensive.
I run several bootstrapped businesses and I am currently hiring for two of them, so this is not an abstract policy discussion for me. It is a number I have to put into a spreadsheet before I can decide whether a role is affordable. I would rather founders knew the real figure before they got the surprise on a payslip run.
What actually changed in April 2025
Two things moved at once, and the combination matters more than either change alone. The rate of employer National Insurance went up from 13.8 percent to 15 percent. At the same time, the secondary threshold, the point above which you start paying it on an employee's earnings, fell from £9,100 a year to £5,000 a year.
On its own, a 1.2 point rate rise is manageable. Dropping the threshold by £4,100 means you are now paying that higher rate on £4,100 more of every employee's salary than you were before. That is the part that turns a modest sounding rate change into a genuinely painful cost increase, and it hits every employee equally regardless of how much they earn.
What it actually costs, in real numbers
Take a mid level developer on £45,000 a year, a fairly typical hire for a small SaaS business. Under the old rules, you paid 13.8 percent on everything above £9,100, which works out at £4,954 a year in employer National Insurance. Under the current rules, you pay 15 percent on everything above £5,000, which comes to £6,000 a year. That is £1,046 more, per developer, before you have changed anything about the role or the salary you offered.
Scale that across a small team and it adds up fast. Five developers on similar salaries and you are looking at over £5,000 a year in additional employer National Insurance that simply was not there eighteen months ago. Nobody got a pay rise. The business just got more expensive to run.
The Employment Allowance offsets less than people think
The government did increase the Employment Allowance alongside the rise, from £5,000 to £10,500, and removed the previous £100,000 cap on eligibility, so more employers can claim it. That is genuinely useful if you are a two or three person company. It barely touches the sides once you have a real team.
Run the numbers for a business with six or seven staff and the Employment Allowance covers a fraction of the extra cost the threshold change created. It was clearly designed to soften the blow for the smallest employers, and it does that reasonably well. It was never going to offset the cost for any software business that has actually started to grow, which is exactly the point where hiring decisions get harder rather than easier.
What this means when you are deciding whether to hire
The honest advice I give founders now is to stop thinking in terms of salary and start thinking in terms of total employment cost, because the gap between the two has widened. A £45,000 salary is not a £45,000 decision any more. Add employer National Insurance, pension contributions, and the usual on costs, and you are closer to £53,000 to £54,000 before the person has written a line of code.
That changes the maths on some decisions that used to be marginal. A contractor engagement that looked slightly more expensive than a permanent hire on paper can end up cheaper once you account for the full on cost of employment, though you need to be genuinely careful about IR35 status rather than treating that as a loophole. I wrote about how badly IR35 has already damaged the UK contracting market, and this NI change adds another reason founders are looking twice at every headcount decision rather than making them quickly.
It also makes cash flow planning tighter than it used to be. If you are running a bootstrapped SaaS business, the extra National Insurance on your existing team is money that is not going into product, marketing, or the runway you need to get through a slow quarter. I have written before about how to manage cash flow properly when you are bootstrapped, and building the current employer National Insurance rate into your forecasts rather than your old assumptions is now a basic part of that exercise.
What I would actually tell a founder hiring right now
Build the real number into your budget before you post the job, not after you have made the offer. Work out the full cost including National Insurance, pension, and any benefits, and decide whether the role is affordable on that basis rather than the headline salary. It is a five minute spreadsheet exercise that saves an awkward conversation later.
Think honestly about whether a role genuinely needs a permanent hire or whether a fixed term contract, a part time hire, or a properly structured freelance engagement gets you the same outcome without the same fixed on cost. None of these are better in every case. They are just worth actually comparing now that the gap between them has grown.
And do not assume the Employment Allowance is doing more work than it is. Check what you are actually eligible to claim, use every penny of it, and then plan around the real number rather than the discounted one, because for most growing tech businesses the allowance covers a smaller slice of the bill each year you add headcount.
None of this makes hiring the wrong call. Good people are still the best investment a small software business can make. It just means the sums have changed, and founders who have not updated their spreadsheet since 2024 are working off numbers that no longer exist.
