Employer National Insurance is up and the threshold is down, the minimum wage has risen again, but the Employment Allowance has more than doubled. Here is what employing staff really costs in 2026, and how small businesses can plan for it.
For most small businesses, staff are both the biggest asset and the biggest cost, and in 2026 that cost has shifted in several ways at once. Employer National Insurance is higher, the point at which you start paying it is much lower, and the minimum wage has risen again, but there is also a far more generous allowance that many businesses can use to soften the blow. Here is what employing people actually costs now, and how to plan for it.
Employer National Insurance: higher rate, lower threshold
From 6 April 2025, the rate of employer (secondary Class 1) National Insurance rose from 13.8% to 15%. At the same time, the secondary threshold, the amount an employee can earn before you start paying employer National Insurance, dropped sharply from £9,100 to £5,000 a year, and it is fixed at that level until April 2028. In plain terms, you now pay a higher rate, and you start paying it far earlier on each employee's wages.
The Employment Allowance has more than doubled
The good news is that the Employment Allowance, which reduces your employer National Insurance bill, increased from £5,000 to £10,500. The previous restriction that barred employers with a National Insurance bill over £100,000 has also been removed, so all eligible businesses can now claim. For many small employers, this allowance cancels out a large part, or even all, of their employer National Insurance for the year.
The catch is that the allowance is not automatic, you have to claim it through your payroll each year. A few rules apply:
- You claim it through your payroll software as part of your normal PAYE reporting
- You cannot claim if the only person paid above the secondary threshold is a single director
- It offsets employer National Insurance only, not the tax or National Insurance deducted from employees
The minimum wage has risen again
From 1 April 2026, the National Living Wage for workers aged 21 and over increased by 4.1% to £12.71 an hour. The rate for 18 to 20 year olds rose to £10.85, and the rate for 16 to 17 year olds and apprentices to £8.00. If you employ staff at or near these rates, your wage bill has gone up automatically, and it is worth checking that everyone is being paid correctly.
What this means for Bristol small businesses
Taken together, these changes make each employee more expensive, particularly part-time and lower-paid roles that now fall into employer National Insurance much sooner. But with the Employment Allowance and a little planning, the impact is manageable. A few practical steps:
- Make sure you are claiming the full Employment Allowance you are entitled to
- Forecast your payroll costs for the year, including the higher National Insurance and wage rates
- Review pay levels against the new thresholds before taking on new staff
- Keep payroll, Real Time Information (RTI), and pension duties accurate to avoid penalties on top of the higher costs
If you would like help forecasting your employment costs, claiming the Employment Allowance, or running your payroll accurately, our team supports businesses across Bristol and the UK with exactly this.
