Employers’ National Insurance contributions (NIC) are rising in April 2025 impacting employee costs, cashflow and margins for businesses.
Other factors are contributing to increased costs too this year, with rising minimum wage bills as one example.
However, many UK businesses are pushing forward and looking at how to offset the additional expenses. Some are even using these hurdles as opportunities for growth and innovation.
In this article, we cover the upcoming rise in employers’ National Insurance, what it means for businesses, and strategies to manage increased costs.
Employers’ National Insurance is going up
From April 2025, employers’ NICs will increase from 13.8 per cent to 15 per cent. This was announced by Chancellor Rachel Reeves in her first Budget. In addition the secondary threshold will drop from £9,100 to £5,000 annually – this is the point where employers begin paying National Insurance contributions.
But there is help for smaller businesses. The Employment Allowance reduces NIC liability for employers who are eligible. From April 2025, this increases from £5,000 to £10,500 –and the £100,000 eligibility cap is being removed.
Although not all businesses will be affected by the changes, there will be many across the country who will face higher costs later this year as a result of them. And since payroll tends to be the biggest expense for companies, cashflow and profitability are likely to be hit.
How the employers’ National Insurance rise is affecting businesses
These changes are predicted to increase payroll costs for employers by approximately 2 per cent, according to the Office of Budget Responsibility (OBR). Increased costs could get passed on to employees via lower wages, or to customers with prices being raised. Redundancies and reduced investment could also be outcomes of the additional costs that businesses need to deal with.
The HR sector is already feeling the impact, with a decrease in advertised roles. Many businesses are pre-emptively exploring cost-saving measures, such as reviewing staffing levels, reducing overheads, and increasing prices.
Some businesses are finding it difficult to plan for growth. For example, the co-founder of a low-carbon startup revealed that the combination of rising costs has led them to freeze hiring, reassess existing roles, and pause wage growth. They’re also considering price increases, though this may take time to implement.
Similarly, the managing director of Theatre School of Scotland estimates that the employers’ NIC rise will add around £60,000 to their company’s annual employee costs. In response, they plan to pass on some of the additional costs to customers, cut expenses, and explore ways to generate additional income.
How businesses can manage higher costs
When dealing with rising costs, it’s essential for businesses to operate as efficiently as possible. One way to do this is to ensure that bookkeeping systems and financial practices are up to date. Accurate financial reporting provides insights into cashflow, performance, and budgeting, and this can help to identify potential issues before they become problematic.
Employers should also explore technology and AI solutions that can reduce employee workloads. It’s a good idea to review all expenses for possible savings too, and consider using available tax reliefs, such as the increased Employment Allowance or research and development (R&D) tax credits.
Other strategies to offset rising employers’ NIC costs include:
- Introducing or enhancing salary sacrifice schemes, where employees accept lower wages in exchange for pension contributions
- Hiring more self-employed workers
- Outsourcing functions such as payroll, HR, and marketing
- Encouraging remote work to reduce office space needs
- Implementing advanced financial forecasting tools to aid decision-making
- Renegotiating supplier contracts to lower costs
- Exploring opportunities for international expansion or shifting focus to less impacted sectors
- Building flexible cost structures that can adjust to fluctuating demand.
Consulting with employees for cost-saving suggestions is another smart approach, as they often have valuable insights based on their day-to-day experience.
Despite the challenges, many businesses remain optimistic and are looking for ways to adapt and innovate. Whether through expanding digital marketing efforts, embracing AI solutions, or considering strategic acquisitions, they’re focused on turning adversity into opportunity.
By adopting proactive planning, sound accounting practices, and flexible strategies, businesses can weather the storm and thrive in 2025 and beyond. These practices will not only help businesses offset higher employers’ NIC costs but will also provide the resilience needed to seize new opportunities and drive growth.
Find out more on how to achieve easier, compliant payroll year-end processing with Sage Business Cloud Payroll.
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How to help your staff avoid National Insurance hike – From today both employers and staff face a 10% increase in the amount they pay each month in National Insurance contributions. But there is a way to help your staff avoid today’s National Insurance contribution increase
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