The Impact of the National Insurance Increase on Employers

In April 2025, the UK government will implement a significant rise in National Insurance (NI) contributions for employers. This change will mean the employer's NI contribution increases from 13.8% to 15%, along with a reduction in the threshold for contributions from £9,100 to £5,000.

Such an increase in operational costs will no doubt be challenging for all businesses but especially tough for small and medium-sized enterprises (SMEs) that already operate on tight margins.

Some large organisations are already showing signs of the impact with Marks & Spencer, Boots, John Lewis and H&M announcing store closures or plans to downsize. 

What could the costs mean for businesses?

Reduction in job creation

Higher employment costs may deter or prevent employers looking to create new roles and/or a pause for employers to branch into new avenues. Employers may become conservative in their growth until they are able to stabilise and plan the additional operational costs. 

Freeze in salaries or salary review

Employers are likely to allocate salary increases more selectively. This means employees may not receive any wage increase during 2025/26 or obtain that below the rate of inflation. Salary freezes or below-inflation increases might lead to dissatisfaction among employees, potentially increasing turnover rates resulting in additional difficulties in providing service standards or placing greater pressure on existing employees. Employers may need to be more creative and find alternative ways to retain talent, such as offering non-monetary benefits or career development opportunities. 

Optimising existing workforce

Employers may look at their existing employees to ensure each person is correctly fulfilling their duties. Performance may be more tightly monitored to allow for maximum output by all. Effective performance management can support employees to maximise their contribution to the business. It is possible some employees will be required to undertake additional tasks where recruitment is frozen due to operational costs.

Restructuring and redundancies

Some businesses may be forced to permanently closure their doors. Another potential impact is workforce restructuring. Some businesses might resort to cutting jobs or restructuring their workforce to manage the increased financial burden. This can lead to redundancies, which not only affect the employees but can also impact the overall morale and productivity of the remaining workforce. The increase in NI is likely to result in redundancies across various sectors, but particularly those that are labour-intensive or operate on tight margins. Businesses will need to regularly manage their labour costs to navigate these challenges.

The British Chamber of Commerce recently published the "National Insurance Creating 'Powder Keg of Costs" report which set out:

• 82% of firms surveyed say the NI rise will impact their business
• 58% of businesses expect the increase to affect recruitment
• 54% of businesses anticipate raising prices to offset the additional costs

What other measures could be undertaken?

Flexible working arrangements

Implementing flexible working hours or remote work can help reduce overhead costs associated with maintaining office space and utilities.

Part-time and contract workers

Part-time or contract workers can provide the flexibility to scale the workforce up or down based on demand, reducing the overall NI contributions.

Invest in technology and automation

Investing in automation and technology can help reduce reliance on human labour which can reduce employment operational costs.

Training and development grants

Using government grants (where available) for employee training and development can enhance workforce skills and subsequent productivity, enhancing a business, setting it aside from its competitors leading to a more profitable business. 

If you are looking to make any of the above changes, and need guidance on reorganising your business, restructuring your workforce, redundancy, settlement agreements or any other issues, we can help you.

Sills & Betteridge Employment Law Team provide specialist representation and advice from their large network of offices in Lincolnshire, Yorkshire and the East Midlands. For details of the team, their specialisms and contact details please see here.

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