Employers’ National Insurance: How The 2025 Rise Will Affect Your Business
From April 2025, Employers' National Insurance contribution (NIC) rates will increase, impacting staff costs, cash flow, and margins for many small and medium-sized enterprises (SMEs). This change, announced in the 2024 Autumn Budget by Chancellor Rachel Reeves, will see the rate of employers' NICs rise from 13.8% to 15%. Additionally, the threshold at which employers start paying NICs (the secondary threshold) will reduce from £9,100 to £5,000 per year.
Impact on Businesses
Not all companies will be affected equally. While some may benefit from the increased Employment Allowance, many others will face significantly higher costs due to the rising contribution rate and lower threshold. Payroll is the biggest cost for many SMEs, so this could significantly impact their cash flow and profits. For example, employers' NICs for minimum wage employees will rise from £1,617 to £2,583.
Offsetting Higher Costs
To help small businesses offset the increased NIC costs, the Employment Allowance, which helps eligible employers reduce their NIC liability, will increase from £5,000 to £10,500. The £100,000 eligibility threshold will also be removed. Here are some strategies to manage the impact:
Review Pricing Arrangements: Adjust your pricing to account for the additional costs, ensuring that margins are not adversely impacted.
Flexible Benefits: Offer more flexible benefits in lieu of salary, such as enhanced pension contributions and changes to holiday allocations.
Salary Sacrifice Schemes: Implement schemes where the employee's salary reduces in exchange for an employee benefit, such as electric cars or cycle-to-work schemes. This can also deliver an income tax saving for employees.
Invest in Training and Development: Enhance or upskill employees to improve productivity within the business.
Utilise the Enhanced Employment Allowance: This will rise from £5,000 to £10,500 per year, offsetting NIC liabilities for many eligible SMEs.
By proactively addressing these changes, businesses can navigate the challenges posed by the rise in employers' National Insurance contributions and continue to thrive.
