In the 2024 Autumn Budget, the government announced that the following changes would come into force from 6th April 2025 for Employer’s NIC:
- A decrease of the Secondary Threshold from £9,100 to £5,000 from which Employers NIC is calculated
- An increase in the Class 1 NICs rate from 13.8% to 15%
- An increase in the maximum Employment Allowance from £5,000 to £10,500.
- Removal of the £100k Class 1 NIC cap for qualification of Employment Allowance
However, as much as the cost implications regarding the NIC changes need to be considered and forecasted, these changes also create an opportunity for employers to step back reassess their approach to staffing, productivity, management and pay and it is these aspects that we wish to explore further.
How Will This Impact your Businesses?
Increased Payroll Costs
Consider this example:
You employ 10 full-time staff members, each earning £25,000 annually. Under the current rules, you pay employer NI on earnings above £9,100 per employee. This means you currently pay contributions on £15,900 of their salary.
Under the new rules, you’ll pay employers NIC on earnings above £5,000, increasing the taxable portion of their salary to £20,000 per employee.
At the new rate of 15%, your costs will rise significantly:
- Before April 2025: You pay £2,194.68 in employers NIC per employee annually at 13.8%.
- After April 2025: You’ll pay £3,000.48 per employee annually at 15%.
This is an increase of £ 805.80 per employee each year. For 10 employees, this adds up to £8,058 annually, a considerable jump for any business.
Staffing Challenges
As costs increase, employers are likely to start thinking about how they can do more with less, looking at automation and other productivity measures to offset the NIC increase without reducing headcount.
The service industry, characterised by a high employee count and often tight profit margins, will likely feel the impact of these changes more acutely, however an impact across all industries can be expected.
How to Prepare Your Business
It is a business imperative to see a return on investment or benefit from anyone employed.
While the NIC changes may feel daunting, there are steps you can take to manage the impact and at Gravita, we are having more and more conversations with business owners to prepare ahead of the changes.
1. Utilise the enhanced Employment Allowance
The Employment Allowance will increase to £10,500, significantly reducing your overall employers NIC bill. If your annual employers NIC liability is £20,000, the increased allowance would cut it by over 50%. This change is particularly helpful for businesses that previously couldn’t claim it due to high NIC liabilities.
2. Optimise your workforce
Evaluate your staffing strategy to balance costs while maintaining flexibility. This may be the catalyst needed to step back and rethink how some teams are structured and what alternative ideas could come into play. For example, you could conduct job evaluations, upskilling the teams and cross functioning wherever possible.
This is also the point to consider if the business has good management, getting the best from their teams, and if all staff are fulfilling their roles and responsibilities. Consider what is done well to do more of, and what actions may be needed to mitigate what isn’t.
3. Review your prices
Take a close look at your finances to anticipate the increased costs. Incorporate the higher NI contributions into your budgeting and pricing strategies to ensure you can absorb the changes without compromising service quality.
4. Review your organisation’s compensation and benefits package
Employers might consider revising salary packages, offering more flexible benefits, or exploring tax-efficient ways to structure employee remuneration, mitigating the overall costs. For example, enhanced holiday rather than salary or salary sacrifice schemes.
5. Focus on Efficiency
Identify areas where you can cut costs or improve efficiency:
- Energy Savings: Upgrade to energy-efficient office spaces.
- Outsourcing: Outsource services to professional service providers to keep the staffing costs minimum.
- Technology Investments: Invest in automation tools for efficient workflow to save time and reduce overheads.
6. Keep your teams informed and supported
Rising costs could impact employee morale. Employers should consider how they communicate changes and engage employees in discussions around the financial health of the business, focusing on fostering a culture of transparency and collaboration.
Proactive management is key
When assessing the changes afoot, it’s important that employers and business owners view the NIC rate changes as part of a broader strategy rather than just a financial burden. By adopting a holistic approach that incorporates financial management, employee management and engagement, and strategic planning, businesses can navigate the changes successfully and hopefully find opportunities potentially missed previously.
It is not likely to come easy. Change of management expectations can often lead to fallout and some difficult conversations along the way. Having the right HR Advisory and Support services working alongside you is key in helping to navigate this journey.
How Gravita can help
If you are not yet aware of the impact of the NIC changes, please utilise our Employers’ NICs calculator and reach out to our Payroll Teams to help understand these changes further.
If you are not speaking with you accountant, please come and speak to us and see how we can help with general business guidance and advice – we are keen to talk!
If you require HR Advisory and Support serves in navigating any team changes, reach out and contact our HR Team.
