From 6th April 2025, there will be an increase to Employers’ National Insurance Contributions. These changes will impact businesses of all sizes, increasing payroll costs for many.
The Upcoming Increase to Employers’ National Insurance
Currently, employers pay National Insurance Contributions at a rate of 13.8% on employee earnings above the secondary threshold of £9,100 per year. From 6th April 2025, the following changes will apply:
- The secondary threshold will decrease to £5,000 per year
- The National Insurance Contributions rate for employers will increase from 13.8% to 15%
- The Employment Allowance will rise from £5,000 to £10,500 per year
- The £100,000 eligibility cap for Employment Allowance will be removed, making it available to more businesses
These changes mean that employers will pay higher National Insurance Contributions on earnings above £5,000, while smaller businesses will benefit from increased Employment Allowance relief.
Who Will Be Affected?
The increase will impact all employers with a Secondary Class 1 National Insurance Contribution liability, particularly those with employees earning at least £5,000 per year.
- Small businesses may benefit from the higher Employment Allowance, which could offset increased contribution costs
- Larger businesses with many employees will face higher payroll costs
- Sectors with lower-paid workers, such as hospitality and retail, will see disproportionate increases in payroll expenses
- Sole director businesses will not qualify for Employment Allowance, meaning they will face a direct increase in National Insurance costs
How Will This Affect Payroll Costs?
For many businesses, the Employers’ National Insurance Contributions increase will impact employment costs.
Example 1: Mid-Sized Business
A company with one employee earning £30,000 per year will see an increase of £866 in contribution costs:
- £3,884 in contributions for 2024/25
- £4,750 in contributions for 2025/26
Example 2: Business with Many Low-Paid Employees
A hospitality business with 50 employees earning £9,100 per year will see an increase of £30,750 in contribution costs. This raises their total payroll expenses from £455,000 to £485,750 (a 6.76% increase).
Additional Impacts
- Approximately 940,000 businesses will see an increase in their contribution costs
- Approximately 250,000 businesses will see a decrease in contributions due to the higher Employment Allowance
- Approximately 820,000 employers will see no change
- Employers will pay £770 more per year for each employee earning minimum wage
- Employers will pay £900 more per year for employees earning the median wage
How to Prepare for the Changes
1. Smaller businesses can reduce their contribution liability by making full use of the £10,500 Employment Allowance.
2. Redirecting earnings into pensions or other benefits through Salary Sacrifice schemes can help reduce taxable salaries and lower contribution liabilities.
3. Businesses should reassess salary costs and budget for increased contribution expenses.
4. If necessary, businesses may need to adjust pricing structures to absorb the additional costs.
5. Automation and workforce restructuring can help offset higher employment costs.
Why Introduce These Changes?
The government introduced these changes to increase funding for public services like the NHS and state pensions. The additional revenue is also expected to contribute £25 billion annually to the UK budget.
However, the increase may lead to lower wage growth as businesses seek to manage higher costs. Moreover, some companies may pass these costs onto consumers, leading to slightly higher prices for goods and services.
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