The Autumn Budget has dealt a blow to UK employers, with a sharp increase in Employers’ National Insurance (NI) contributions coming into force from April 2025. The rate employers will need to pay rose from 13.8% to 15% while the secondary threshold dropped to £5000, from £9100. With companies already navigating cost pressures and a challenging economic landscape, these changes will require many to think strategically about managing the financial impact. Here’s what you need to know about these changes—and practical steps that could soften the blow.
What’s changing?
The new budget introduces an increase in the Employers’ NI rate, which is expected to generate billions for the Treasury. Alongside this, the threshold where employers must start paying NI is set to drop, meaning many businesses will be contributing more, even for lower-paid roles.
Also announced was the increase in the Employment Allowance, which will rise to £10,500, offsetting Class 1 Employer’s NI. The government also plans to remove the £100,000 Employers’ National Insurance contribution test, so all employers would be eligible to receive the allowance.
Businesses are talking about budgeting and what they’re going to have to do to manage that going forward. This shift could see companies facing tough decisions around workforce costs, employee benefits and hiring budgets as they strive to keep their plans on track.
Increased strain on business finances
The rise in NI contributions arrives at a particularly challenging time, as many businesses are already grappling with inflationary pressures. The added NI cost may hit minimum-wage employers hardest. For those employers, the only way forward may be passing on some of these costs, potentially requiring price hikes in certain cases.
With the pressure to balance costs, some companies may also find themselves delaying pay rises, adjusting benefits, or even postponing hiring plans to offset the added expense. As the new rules roll out, businesses will likely need to revisit their budgets with greater scrutiny.
Practical strategies to mitigate the impact
Although the NI increase is out of employers’ hands, there are steps businesses can take to offset some of the costs. Here are a few strategies to consider:
1. Utilise salary sacrifice schemes
Salary sacrifice schemes offer employees the option to trade part of their salary for specific benefits, reducing both employee and employer NI contributions. Companies with employees who aren’t using salary sacrifice interventions might find this strategy beneficial. This approach not only reduces NI costs but can help make benefits packages more appealing to current and prospective employees.
However, employees on the National Living Wage and National Minimum Wage are unable to partake in salary sacrifice, as it would take them below the wage threshold. It is advised that employers speak with a specialist about the pros and cons of implementing a salary sacrifice scheme as there are contractual aspects to manage going forwards.
2. Proactive budgeting and forward planning
The increase in NI contributions highlights the need for detailed budgeting and financial forecasting. Some forward thinking is essential to many businesses managing tight margins. Working with a firm like Gravita can help with tailored budgeting and forecasting that pinpoints areas where efficiencies can be found, helping businesses prepare rather than react as the changes take effect.
3. Review workforce composition and compensation structures
Re-evaluating workforce composition and compensation models could also help manage increased NI expenses. This might involve considering a flexible workforce model, such as a mix of full-time, part-time, and temporary staff. Additionally, reviewing bonus structures and variable pay options could provide incentives without inflating fixed salary costs that incur higher NI contributions.
Supporting small and medium-sized businesses through the transition
Small and medium-sized businesses may find the NI increase especially challenging, given their often-limited budgets and resources. While the increased Employment Allowance could offer some relief, many of these companies will still face significant financial adjustments. Strategic planning and professional guidance can be particularly valuable during these transitions, helping prepare for additional costs and make the most of available allowances.
Gravita’s experience working with small and medium-sized businesses means we can provide tailored advice to help smaller businesses stay on top of tax changes, including guidance on structuring employee remuneration and long-term budgeting to better withstand the shifting tax landscape.
Building resilience in a changing tax environment
Looking beyond the NI increase, this budget underscores the importance of preparing for a changing tax landscape. Businesses that build flexible, resilient financial strategies now will be better positioned to adapt to future adjustments. This might mean regular tax planning, reviewing eligibility for reliefs, and staying informed about other potential reforms that could affect tax liabilities in the years ahead.
What employers need to do
The hike in Employers’ National Insurance presents a challenge to businesses of all sizes. But with proactive budgeting, strategic workforce planning, and careful consideration of salary structures, companies can better position themselves to absorb these costs. Gravita’s specialists are available to provide tailored support, helping businesses face these changes with confidence.
Although these changes may seem daunting, they also offer an opportunity for companies to sharpen their financial strategies. By making smart adjustments now, employers can protect their bottom line, keep growth plans on track, and emerge more resilient in the long run.
Get in touch for specialist advice on budgeting around Employers’ National Insurance.
