Businesses in the UK will see an increase in Employer National Insurance contributions (secondary class 1 NICs) as of April 6, 2025. The rate will rise by 1.2% from 13.8% up to 15%. This will put additional financial pressure on businesses.
The employer contribution threshold will also be reduced from PS9100 to PS5,000 annually, which will allow more low-income employees and part-time workers to join the system.
Businesses can benefit from the new Employment Allowances, which will rise from PS5,000 up to PS10500. The PS100,000 cap on National Insurance liabilities for the previous year will be removed. This will broaden eligibility for SMEs.
Challenges facing UK business
This change is a challenge for SMEs who are already struggling with high salaries. These changes may add to the strain on businesses that are still struggling to recover from economic challenges in 2024.
The cost of National Insurance will increase financial pressures. This increase may push SMEs who are currently at breakeven into a losing position. The higher employment allowance may provide some relief to larger SMEs, but those with large payrolls will likely see little benefit.
The lower threshold will also mean that part-time workers who were previously exempt from employer National Insurance contributions are now included in the calculation, increasing costs.
Industry-specific Pressures
Some industries will be more affected than others. Salary inflation has been significant in marketing over the last four years. Client behaviour has changed for many agencies, as clients are opting for shorter projects with high impact and less long-term commitments. The revenue has become more volatile, and budgeting is more difficult. These pressures are exacerbated by the addition of payroll costs.
In the same way, industries whose employees are paid hourly may find it difficult to budget for this increase. Businesses that have unpredictable revenue streams and fluctuating workloads will find it difficult to absorb rising costs.
Julie Rodrigues is the Finance Director of Hallam and she has shared with us some important considerations that leadership teams, as well as individuals themselves, need to take into account to ensure business success.
Six considerations for HR and leadership professionals
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Calculate payroll budgets
Businesses must now reassess the viability of salary increases in light of these changes. To avoid financial stress, the increase of 15% should be incorporated into any new salary increases.
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Review operating costs
Businesses should review their operations to find cost-savings opportunities as payroll costs rise. The 1.2% increase in payroll costs may be manageable by highly profitable businesses, but those with smaller margins will need to adjust their other expenses. Organizations should assess whether they can reduce their costs or increase revenues to offset additional spending.
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Use freelance support
Businesses that are unable to absorb these costs may consider shifting to contract or freelance employment. Freelancers are often paid higher rates per hour, but you do not have to pay employer National Insurance Contributions. This flexibility can be especially useful in times of uncertainty.
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Consider price adjustments
Businesses must decide if they will absorb these costs or pass on the cost to their clients via reasonable price increases. Marketing, for example, should consider adjusting their annual prices to reflect inflation and rising costs. Price increases should be competitive and acceptable for clients who are also under financial pressure.
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Implement salary-sacrifice schemes
Salary sacrifice can reduce National Insurance costs for employers by lowering employee gross salaries. You won’t have to do anything if your employees already do this.
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Review workplace pension schemes
Some pension schemes work the same way as salary sacrifices and you can benefit from lower insurance costs. Employers need to review their workplace pension plans in order to maximise these benefits.
To ensure that your business’s finances are in good shape, you must take these considerations into account. You may need to adjust your operational costs and prices in order to reflect an increase.
Leadership and HR professionals who take proactive measures can navigate these changes in a strategic way, ensuring financial security while maintaining competitiveness and sustainability.
The original version of this article, How business and HR leaders can navigate the national insurance increase, appeared first on Human Resources News.
