What are the Lower Earnings Limit rates for 2025-26 and 2027?

Navigating payroll compliance is increasingly complex for UK businesses, with significant shifts in the Lower Earnings Limit and National Insurance reshaping employer costs.

This guide breaks down exactly what finance and HR teams need to know about the Lower Earnings Limit in 2025/26, and the new regulations and confirmed changes for 2026/27.

What is the Lower Earnings Limit and how does it work?

The Lower Earnings Limit (LEL) is the earnings threshold that triggers an employee’s entitlement to certain state benefits, even if they do not earn enough to pay National Insurance Contributions (NICs). It acts as the minimum pay point at which an employee gains access to a state pension and contributory benefits, without necessarily seeing a deduction on their payslip or an impact on their net income.

For business owners and employers, monitoring this limit is vital. While you do not deduct NICs from pay falling between the LEL and the Primary Threshold, you must still report these earnings to HMRC via your payroll software. Failure to record this correctly may impact your employee’s future pension and benefit claims.

What is the Lower Earnings Limit for the 2025/26 tax year?

For the current tax year (2025/26), the UK government has maintained a freeze on several personal tax thresholds (such as the Personal Allowance and Primary Threshold), planning to do so until 2031.

However, unlike these frozen tax-paying thresholds, the LEL is typically adjusted with inflation specifically in order to maintain the state pension entitlement for low-earners. Consequently, the LEL saw a slight adjustment compared to previous years, and will rise again in 2026 (from £125 to £129).

For the period ending 5th April 2026, the Lower Earnings Limit 2025/26 is set at:

• £125 per week

• £542 per month

• £6,500 per year

Any employee earning at or above this level will get the benefit of a qualifying year for their state pension. However, they will only start paying Class 1 National Insurance once their income hits the Primary Threshold of £242 per week.

How does the LEL affect state pension entitlement?

Crucially, the LEL acts as a protection mechanism for low earners. Even though the threshold saw only a minor adjustment to £125 per week, it ensures that employees earning between this amount and the Primary Threshold (£242) continue to build up their state pension entitlement without having to pay Class 1 National Insurance.

This mechanism protects the long-term benefits of part-time workers while keeping their immediate tax burden at zero.

Why did employer costs increase in 2025?

While the LEL remains relatively low, the Secondary Threshold, or the point at which employers start paying employer National Insurance, was slashed from £9,100 to £5,000 per year in April 2025.

Coupled with the April 2025 Employer NIC Rate increase to 15%, from the rate of 13.8% in 2024, this significantly increased the cost of employing staff, therefore impacting profits. This is especially the case for any business employing a certain number of part-time workers who were previously below the employer NI radar.

What changes are coming to the Lower Earnings Limit in 2026?

Looking ahead to the new tax year starting April 2026, the landscape is shifting once again. The Department for Work and Pensions (DWP) has now confirmed that the Lower Earnings Limit for 2026/27 will rise.

The confirmed LEL for 2026/27 is:

• £129 per week

• £559 per month

• £6,708 per year

Will Statutory Sick Pay eligibility change?

The most transformative change arriving in 2026 is the decoupling of the LEL from Statutory Sick Pay (SSP). Historically, employees have had to earn at least the LEL to be eligible for sick pay.

From April 2026, the government plans to remove this earnings limit for SSP entirely. This will mean that every employee, regardless of how low their pay is, will be eligible for statutory support from their very first day of sickness.

What are the administrative implications of the SSP reform?

The removal of the LEL for sick pay purposes means HR teams will face a significant increase in admin volume.

Currently, automated payroll software will generally exclude lower-paid staff from SSP calculations. However, from April 2026, every employee will be eligible from day one, requiring robust HR and payroll systems to track short-term absences for even the most casual workforce.

HR and Finance managers must prepare for this administrative and cost burden, as it will bring many lower-paid workers into the scope of statutory payments for the first time.

Employers should therefore review their absence policies and employee handbooks, and ensure that their payroll software is configured to handle these lower-value but high-frequency payments.

What are the confirmed rates for 2025/26 and 2026/27?

The following table summarises the key thresholds and rates for the current and upcoming tax years.

Note: These figures are based on the standard category letter (Category A for employees over 21). Special rules and different rates apply for apprentices, veterans, and employees working in freeports.

How should UK businesses prepare for these LEL changes?

With the Upper Earnings Limit frozen, and the Secondary Threshold reduced in 2025, the tax wedge on employment has widened.

Is your payroll software ready for the changes?

Manual calculations are no longer sustainable given the divergence between tax thresholds and benefit eligibility.

Using comprehensive, HMRC compliant software for UK SMEs will ensure that when the LEL rises to £129, your systems will automatically adjust the payroll calculations without any need for manual intervention.

How should you budget for the increased liability?

The combination of a higher National Minimum Wage and the removal of the SSP earnings allowance means business costs will certainly rise.

Finance leaders should therefore model and plan for this cost increase now in order to ensure cash flow remains healthy through 2026 and into 2027.

What about Student Loans and the Employment Allowance?

Don’t overlook other deductions, thresholds and allowances. For example, the earnings cut-off point for student loans (on Plans 1, 2, 4, 5, and Postgraduate Loans) often changes in April.

Make sure you have a strategic plan in place to verify student loan plan types for every employee, including Scottish borrowers (on Plan 4), and those with Master’s degrees (Plan 3).

Additionally, ensure you are claiming Employment Allowance, which increased to £10,500 in April 2025, to offset some of the impact of Class 1 secondary NICs on profits.

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