Managing the increase to employer national insurance contributions
This insight was originally published for use in the ‘Business Time in Essex’ magazine in collaboration with the Essex Chambers of Commerce.
What are the changes to employer national insurance contributions (NICs)?
Businesses are understandably concerned about the increase to employer national insurance contributions (NICs) announced in the most recent Budget.
From April 2025, the employer NIC rate will increase from 13.8% to 15%, while the earnings threshold, after which contributions start, is dropping from £9,100 to £5,000. These changes mean businesses will face higher costs for each employee. When the two measures are taken together, it is estimated that there will be an additional £926 in employer NIC exposure for an employee earning £35,000 a year. Here are our top five tips to help navigate this change.
Review your workforce needs
For many businesses, payroll costs are a substantial portion of their budget. Take the opportunity to review your employment arrangements to determine if any changes and savings could be made. For instance:
- consider working arrangements: For roles that do not require full-time employees, part-time or flexible standing could help control the overall payroll burden while maintaining productivity; and
- outsource non-core functions: outsourcing functions, such as accounting, IT and HR can be a cost-effective way to manage increased NICs. This also allows you to focus on your core business activities while leveraging the expertise of external specialists.
Make the most of the employment allowance
It’s important you understand eligibility for, and where relevant claim, the employment allowance because it translates into money off your tax bill. From April 2025, the employment allowance, which is an amount set against an employer’s total NIC bill, has been increased from £5,000 to £10,500. The eligibility threshold has also been removed, making more businesses eligible for the allowance. Previously, only employers with a total NIC liability below £100,000, in the prior year, could claim the allowance.
Salary sacrifice schemes
Salary sacrifice schemes can reduce the NIC exposure for both the employee and employer. Under such a scheme, an employee gives up part of their salary in exchange for certain benefits, such as pension contributions or provision of a low emission/ electric car. While these schemes are often used for higher-paid employees, correctly structured salary sacrifice schemes can be beneficial for both the employer and employees across the workforce.
Non-cash benefits and incentives
The increase to employer NICs will make employing people more expensive and awarding pay increases more challenging. Non-cash benefits, such as additional paid time off, flexible working hours and wellbeing programmes can boost morale and improve productivity. This will help retain employees without increasing the employer NIC burden.
Review your business structure
Review your structure to ensure tax efficiency and suitability for your needs. For example, if multiple family members are involved in the business, distributing profits among those individuals could help manage tax liabilities, potentially offering some relief from the future increased employer NIC costs. This may involve restructuring ownership but, with the right guidance, it can help retain more wealth within the family.
If you would like further information on how to minimise the impact of increased NIC’s then please contact a member of our entrepreneurial business team.
