As of 6th April 2025, businesses across the UK will face a rise in Employer National Insurance Contributions (secondary Class 1 NICs). The rate will increase by 1.2%, from 13.8% to 15%, placing additional financial pressure on organisations.
In addition, the threshold for employer contributions will decrease from £9,100 to £5,000 per year, bringing more low-income and part-time employees into the system.
Businesses could benefit from new employment allowances which will increase from £5,000 to £10,500. However, the £100,000 limit on the previous year’s National Insurance liability will be removed, broadening eligibility for SMEs.
You can read more about the official announcement of changes on the government website.
What challenges face UK businesses?
For SMEs that are already contending with high salary costs, this change comes at a difficult time. Many businesses are still recovering from the economic challenges of 2024, and these changes could add further strain.
Salaries have been rising above inflation, and the additional National Insurance costs will only add to financial pressures. SMEs that are currently operating at breakeven, may see this increase push them into a loss-making position. Whilst the higher employment allowance will provide some relief, larger SMEs with more substantial payrolls may see minimal benefit.
Additionally, the lower threshold means that some part-time employees who previously fell outside employer National Insurance contributions will now be included, further increasing costs.
Why consider industry-specific pressures?
Certain industries will feel the impact more acutely. In marketing, salary inflation over the past four years has been significant. Many agencies have faced shifting client behaviour, with reduced long-term retainers and a preference for shorter, high-impact projects. This shift has made revenue more volatile and budgeting more challenging. Additional payroll costs add another dynamic to these pressures.
Similarly, industries that rely on hourly-paid employees may struggle to budget for the increase. Businesses with fluctuating workloads and unpredictable revenue streams will find it particularly difficult to absorb the rising costs.
Here, Julie Rodrigues, Finance Director at Hallam shares some vital considerations leadership and personal teams need to consider to protect business success.
Six key considerations for leadership and HR professionals to navigate National Insurance changes in the UK
- Assess payroll budgets
With these changes, businesses must reassess their payroll budgets to ensure salary increases are still viable. The increase to 15% should be factored into any new pay rises to avoid financial strain.
- Review operational costs
As payroll expenses rise, businesses should conduct a thorough operational review to identify cost-saving opportunities. While the 1.2% increase may be manageable for highly profitable companies, those with lower margins may need to adjust other expenditures. Organisations should evaluate whether they can reduce costs elsewhere or increase revenue to offset the additional spending.
- Leverage freelance support
For businesses unable to absorb the additional costs, shifting to freelance or contract-based employment may be an option. While freelancers often command higher hourly rates, they do not require you to pay employer National Insurance contributions. This can provide more flexibility, particularly in uncertain market conditions.
- Consider price adjustments
Businesses must decide whether to absorb these additional costs or pass them on to clients through reasonable price increases. Service-based industries, such as marketing, should review their rate cards and consider national insurance changes within annual price adjustments to account for inflation and rising costs. However, any price increases must remain competitive and acceptable to clients, who are also facing financial pressures.
- Implement salary sacrifice schemes
Salary sacrifice schemes can help reduce employer National Insurance costs by lowering employees’ gross salaries. If employees already have this in place then you won’t need to do anything as you will already be seeing the impact automatically, however, if you were thinking about rolling out salary sacrifice schemes to your employees, now might be a good time to do so.
- Review workplace pension schemes
Just like salary sacrifices, some pension schemes also work as a salary sacrifice scheme and therefore you will be benefiting from lower national insurance costs. Employers should review their workplace pension schemes to ensure they are maximising these benefits.
These considerations are vital to ensure the health of your business finances. Whether that’s checking you are claiming the correct employment allowances and eligibility, or adjusting your prices and operational costs to reflect the increase.
By taking proactive steps, leadership and HR professionals can navigate these changes strategically, ensuring financial stability while maintaining competitive and sustainable operations.
hallam.agency
