Business owners have started work in January 2025 faced with the prospect of significantly higher wage costs. This is a result of the increase in employers’ national insurance contributions (NICs) announced in the 2024 Autumn Budget.
Starting on 6 April 2025, employers face a 1.2 % increase in the NICs they pay on employees’ earnings – increased from 13.8% to 15%. In addition, there is a reduction in the earnings threshold at which the contributions start – reduced from £9,100 to £5,000 per year. This change to NIC rates and threshold affects businesses of all sizes but will be particularly punitive for those who employ greater numbers of workers on the minimum wage and lower salary scales. Industries set to be hit hard include retail, hospitality, and leisure and entertainment – sectors that are already finding trading conditions to be challenging.
This article explains what the financial implications of this increase are for different salary levels and offers some suggestions on how best to mitigate them.
Employers’ NICs increase – what is the impact on wage costs?
The increase in employers’ NICs will result in higher wage costs across various salary levels. Here are some examples:
For an employee earning £30,000 annually, the employers’ NIC contributions will increase by £209 per year from £2,884 to £3,093.
For minimum wage workers, employers will have to pay an additional £770 in NICs per employee.
For employees on median earnings, the extra NIC cost will be around £900 per employee.
Employers are not the only ones to face higher tax rates; workers are negatively affected too, although there has been a lot of government hype around rewarding working people. A full-time worker on minimum wage in 2024 earned an annual salary of £20,821, paying £1,650 in income tax and £659 in NICs. From the next tax year (2025-2026), the same worker will earn £22,222, an increase of £1,401. However, the amount of income tax and NICs they will pay on this also increase by £280 and £112 respectively, due to frozen thresholds, leaving them only £1,009 better off over the year, i.e. £84 a month.
Managing the employers’ NICs increase – advice for business owners
If you’re a business owner concerned about these increases, consider the following strategies:
1. Review your budget and pricing: assess how the NIC changes will impact your bottom line and consider adjusting your pricing strategy to offset increased costs.
2. Explore salary sacrifice arrangements: this can help reduce NIC costs for both employers and employees, while potentially increasing pension savings.
3. Optimise staffing structure: evaluate your current staffing levels and consider restructuring to manage costs effectively.
4. Consider whether you could benefit from adopting technology and automating more of your business. This could help you to improve efficiency and reduce labour costs.
5. Are you using the Employment Allowance effectively? Small businesses can benefit from the newly increased Employment Allowance, now £10,500, to offset some of these extra NIC costs.
6. Seek expert advice: ask your accountant or tax advisor to help you develop a tailored strategy for your business so you can minimise the impact.
The increase in employers’ NICs comes into effect in just 3 months. It is advisable to deal with this impending change proactively and address how these NIC increases will impact your business. That way you can better manage your future wage costs and maintain your business’s competitiveness in view of these new financial pressures.