In October the newly elected Government gave us an insight to the UK’s finances going into 2025, along with who, what and how badly they will be affected over the next financial year onwards. Unfortunately for employers, it hasn’t made for pleasant reading.
Mainly pertaining to employers National Insurance Contribution (NIC), which as we know is used to helps as a mechanism for the Government in funding state benefits such as the NHS, pensions, and other public services. The Government have put forward the net increase to employers NIC from 13.8 – 15%. The recent policy change has sparked considerable debate and concern among businesses.
We explore how the NIC increase will affect you as employers, what it means for cost structures, and its broader implications for the economy.
So, what was announced in the Budget?
In the Chancellors Budget, it was announced that the following changes will all be introduced from April 2025.
- The rate of employers’ NICs will increase from 13.8% to 15%
- The threshold where employers pay employers’ NICs on each employee’s salary is reducing from £9,100 to £5,000 a year.
- The Employment Allowance will increase from £5,000 to £10,500.
- The National Living Wage (NLW) (payable to those aged 21 and over) will increase to £12.21 per hour.
- The National Minimum Wage (NMW) (payable to those aged 18-20) will increase to £10 per hour.
As of April 2023, employers paid NICs at a rate of 13.8% on earnings above the Secondary Threshold, which is set at £9,100 per year. However, the recent government decision has increased this rate to 15.05% as part of a broader strategy to support public services and address fiscal challenges the UK is facing going forward.
Although this is a seemingly modest rise of some 1.25%, it has far-reaching implications for businesses of all sizes. While it may appear negligible in isolation, the aggregate effect can be significant when applied across an entire workforce, particularly for industries with high employee counts and tight profit margins, new business or even those looking to increase employment and scale their workforce.
Calculating the Cost Increase Per Employee
Calculating the cost of your employees is obviously a pivotal factor of operating any business. So, It is no wonder employers are now scrambling to better understand what their monthly employee contributions will be as of April 2025.
| Yearly Wage (Gross) | Employer Monthly NIC 24/25 | Employer Monthly NIC 25/26 | Net Increase Per annum |
| £30,000 | £240.39 pcm | £312.45 | £864.65 |
| £70,000 | £700.39 pcm | £812.45 | £1,344.65 |
| £100,000 | £1,045.39 pcm | £1,187.45 | £1,704.65 |
What Sectors Will be Impacted the Most?
The effect of the NIC increase will vary depending on the industry and workforce composition of your business:
- Small and Medium Enterprises (SMEs): SMEs with limited cash flow are particularly vulnerable. The additional burden could deter hiring, lead to reduced employee benefits, or even result in redundancies. There is also the issue of retaining staff in a cost-of-living crisis and those who may be looking for a pay rise which immediately affects Employer NIC’s
- Labour-Intensive Sectors: Industries such as retail, hospitality, and healthcare, which rely heavily on a large workforce, some of whom are on minimum wage, will feel the brunt of this policy. For example, a hospitality business with 200 staff earning £25,000 annually would face an additional annual NIC cost of approximately £52,500 per month.
- Technology and Professional Services: While these sectors often have higher average salaries, they are less reliant on large headcounts. As a result, the relative impact may be less severe.
How Can I Mitigate My Business against these changes?
The honest truth is that no matter what you do, your business is going to change due to this increase, whether you are a big or small company these changes will have an effect.
There are however several ways to lower the impact in 2025, some more extreme than others and entirely dependent on where your business is today, along with where you want to be in the next year.
Employers can adopt several strategies to manage the increased NIC burden effectively:
- Automation and Efficiency: Investing in technology and automation to reduce reliance on manual labour can help offset increased payroll costs.
- Optimizing Workforce Composition: Something that has been creeping into conversations since the announcement is Employers considering restructuring their workforce. This would likely mean having a focus on retaining high-value roles within the existing employee structure while outsourcing lower-value and less skilled tasks.
- Salary Sacrifice Schemes: These schemes allow employees to exchange part of their salary for benefits such as pension contributions, reducing the NIC liability for both parties.
- Advocacy and Policy Engagement: Businesses can collaborate with industry associations to lobby for government support, such as NIC reliefs for specific sectors or thresholds.
Ultimately, depending on where your business is an what the aspirations are for the next financial year, decisions will have to be made about how best to mitigate the increase.
What are the Broader Economic Implications?
While the NIC increase aims to bolster public finances, it may have unintended consequences. Like anything in life, when you take money from somewhere, it usually means something else must suffer as a consequence.
There could further implications in:
- Employment Growth: Higher employer costs could dampen recruitment activity, particularly among SMEs, which are key drivers of job creation in the UK and helps economic growth.
- Wage Growth Pressure: Employers might struggle to offer competitive salary increases if a significant portion of their budget is allocated to NICs. Meaning long-serving staff, or skilled new staff are obliged to seek employment elsewhere.
- Inflation: Businesses might pass on the higher costs to consumers through increased prices, contributing to inflationary pressures and helping to attribute to lower sales or retained services as businesses and customers look to save.
- Investment and Innovation: Companies facing tighter margins may scale back investment in research, development, and employee expansion. All of which ultimately mean less growth for such businesses and thus, the UK economy.
Regardless of which, it is hard to see how these changes won’t have a negative ripple effect in other areas of our economy and growth over the next year. A lot of businesses will undoubtedly have a lot of hard decisions to make from April which we can only hope will not further the demise of the UK and the affect that has on the working people of this country.
Can Omni-Talent Help My Business?
Unlike the questions posed above, this is an easy one……. Yes!
Albeit OT wasn’t created with our current scenario in mind, but we certainly did create OT to give employers another choice when faced with hard decisions when it comes to employment. We have not celebrated the news in the budget but moreover looked and trying to reach out and help more business such as yours to scale and grow your company whilst not undertaking more personnel/HR problems and the attributed higher costs of employment in the UK.
What does Omni-Talent do?
OT provides businesses of all sizes the ability to offset roles within their employment structure that can be managed and dealt with remotely, whilst capitalizing on the lower costs and removal of all HR related issues of remote working employment.
We spend the time to work with you and your requirements and fulfil those requirements with English literate applicants. OT can help you scale a role within weeks and on average be 40% cheaper than a UK based employee.
Get in touch with us today so we can help keep your business moving forward in 2025 and beyond.
