Significant changes to employer national insurance contributions are due to be imposed from April 2025. Not only will the rate of national insurance contributions that an employer must pay increase from 13.8% to 15% but the threshold at which employers will have to start paying national insurance contributions will also be reduced from £9,100 to £5,000.
These changes will result in much higher employment costs for businesses and, at a time when the economic climate remains challenging, many employers are considering how they will be able to afford the changes that are afoot. In fact, it is estimated that 2025 will be the most expensive year on record for employers of minimum wage workers.
Some strategies that employers can consider are:
- Review payroll budgets – ensure that you have an accurate understanding of your current payroll expenditure and apply the new national insurance changes to it. This will provide a clear picture of the increased cost and allow for budgeting decisions to be made to assess whether sufficient funds are available to cover the additional national insurance liabilities.
- Utilise the employment allowance – to help small businesses offset the increased national insurance costs, the employment allowance which helps eligible employers reduce their NIC liability will increase from £5,000 to £10,500 and the current eligibility threshold of £100,000 will be removed. Ensuring that these allowances are fully utilised can help eligible employers to reduce their annual national insurance bill by up to £5,000.
- Consider salary sacrifice schemes – encourage staff to participate in salary sacrifice schemes such as for pension contributions, holiday purchase, childcare vouchers, electric vehicle or cycle to work schemes. This can reduce both employer and employee national insurance contributions as well as enhance employee benefits, so it is a win-win!
- Explore workforce restructuring – evaluate your current workforce needs to identify if there are any opportunities for increased efficiency. For example, can you redefine roles or use new technology or automation? Alternatively, could you outsource certain functions such as HR or marketing, or can you encourage flexible working arrangements to optimise productivity and reduce costs.
- Stay informed and compliant – keep up to date with any further changes that there may be and plan ahead. For example, some employers may look to more flexible staffing models such as using zero hour contracts or agency workers, but with further regulation of these types of working arrangements also expected under the Labour Government’s Employment Rights Bill over the next 12-18 months, this may only provide a short term and limited solution.
Proactive planning is essential to manage the forthcoming national insurance changes effectively. Undertaking a comprehensive review of financial and operational strategies to identify areas where adjustments can be made is key to maintaining compliance with employment laws and ensure financial stability.
If you require further advice and support on the upcoming changes, please contact our employment team on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.