The employers national insurance increase has caused significant financial strain on UK businesses. As employers face higher costs, many are exploring ways to manage these changes while maintaining profitability.
The British Chamber of Commerce released a survey they held with 5,000 businesses. It revealed that tax concerns reached levels unseen since 8 years ago. Businesses are worried about the increased costs not only from this but also due to a reduced payment threshold, and a rise in the national living wage. This will all take effect in April 2025.
In this blog, we will examine the impact of the employers national insurance increase, how businesses are responding, and practical, cost-effective solutions to mitigate the burden.
What is the Employers National Insurance Increase
The government has confirmed that the NI for employers will increase from 13.8% to 15% by April 2025. Additionally, the earnings threshold for employer NI contributions will drop from £9,100 per year to £5,000. To assist smaller businesses, the employment allowance will rise from £5,000 to £10,500.
How Does the National Insurance Increase Affect Businesses?
The hike in NICs has forced many businesses to reevaluate their budgets and operations. Below are some key impacts:
- Higher Operational Costs
For businesses with large payrolls, the additional NICs can significantly reduce profit margins. - Price Increases
Some companies have passed the cost onto consumers by raising prices. While effective, this approach risks alienating customers. - Restructuring and Redundancies
Others have resorted to cutting jobs or restructuring their workforce. While this reduces expenses, it can harm company morale and reputation.
Positive, Less Costly Solutions to Offset the NIC Increase
Instead of raising prices or cutting jobs, businesses can explore these strategies to adapt to the employers national insurance increase:
Invest in Employee Training
Upskilling employees can have a profound impact on a business’s efficiency and bottom line. By investing in management training programs, businesses can improve productivity and reduce the need for additional hires, thereby offsetting the employers national insurance increase. For instance, cross-training staff to perform multiple roles ensures greater flexibility and better resource allocation during busy periods. Additionally, apprenticeships and government-supported training schemes may provide further tax incentives, reducing overall expenditure.
Adopt Flexible Working Arrangements
Flexible working, including remote and hybrid models, offers more than just employee satisfaction. By reducing the need for office space, companies can lower overhead costs such as rent, utilities, and maintenance. With fewer employees commuting daily, businesses may also consider scaling back on travel allowances, further improving cost efficiency. Employers who adapt to flexible working also benefit from improved staff retention, reducing the costs associated with recruitment and onboarding.
Review Employee Benefits Packages
Non-monetary perks, such as flexible hours, additional leave days, or wellness programs, can maintain employee satisfaction while keeping costs manageable. Rather than increasing salaries, businesses could focus on providing benefits like discounted gym memberships, mental health support, or professional development opportunities. These alternatives can boost employee morale without significantly impacting the payroll budget.
Automate Repetitive Tasks
Automation technology is a powerful tool for reducing operational costs due to employers national insurance increase. By automating repetitive administrative tasks, such as payroll processing, invoice generation, or data entry, businesses can streamline operations and reduce the need for large support teams. While some automation software may come with a cost, the long-term savings in labour costs and increased efficiency make it a worthwhile consideration
Explore Tax Relief Opportunities
Businesses should actively research and take advantage of government tax incentives and grants. These may include schemes aimed at promoting innovation, energy efficiency, or job creation. If you would like help to source any grant opportunities, out team of experts are more than happy to assist.
Enhance Energy Efficiency
Energy-efficient practices can lead to substantial cost savings over time. Investing in LED lighting, improving insulation, and installing energy-efficient heating systems can reduce utility bills significantly. Businesses might also explore renewable energy solutions, such as solar panels, which not only cut costs but also align with corporate sustainability goals. Some green investments may qualify for government subsidies or tax breaks, offering further financial relief.
Implement Salary Sacrifice Schemes
Salary sacrifice schemes are an effective way to reduce employer National Insurance increase while providing valuable benefits to employees. Under these schemes, employees agree to exchange a portion of their salary for non-cash benefits, such as pensions, childcare vouchers, or cycle-to-work schemes.
For employers, this reduces the NIC liability, as contributions are based on the reduced salary figure. Employees also benefit by paying less tax and NICs on their adjusted income. Properly implemented, salary sacrifice arrangements can boost morale and save costs without impacting take-home pay significantly.
The Importance of Communication
Transparency is essential when implementing any changes to offset the NIC increase. Keeping employees informed helps maintain trust and morale, even during challenging times.
Preparing for the Future
Adapting to the employers national insurance increase requires innovation and resilience. Businesses that invest in efficiency, productivity, and employee wellbeing are more likely to weather the financial impact successfully.
While the increase presents challenges, it also offers opportunities for businesses to rethink their strategies. By focusing on cost-effective, employee-friendly solutions, companies can thrive even in a high-cost environment.
FAQs About the Employers National Insurance Increase
How much will employers’ NI increase costs?
The employers’ NIC rate will increase from 13.8% to 15%. This change is set to take effect from April 2025.
How to calculate employers NI 2024-25??
Employer NI is charged at a rate of 15% (13.8% in 2024/25). The calculation is based on the value of taxable benefits given in the prior financial year.
What does the NI increase mean for businesses?
The 1.2% increase in National Insurance Contributions for employers will mean businesses outgoings with increase significantly. As well as this, the threshold at which employers are required to begin paying National Insurance is set to decrease. This change means that many businesses will face higher contributions, even for employees in lower-paid roles. As a result, companies with larger workforces or those employing staff at entry-level wages are likely to see a significant rise in their overall payroll costs.
How can businesses adapt to the increase?
Strategies include automating tasks, reviewing benefits, and exploring tax relief opportunities.
Will the increase be permanent?
The duration of the employer National Insurance increase depends on future government policy and economic needs.
How The HR Booth Can Help
At The HR Booth, we understand the challenges businesses face with the employers’ National Insurance increase. Our expert team can support you in developing cost-effective strategies to manage rising costs while maintaining employee satisfaction. Whether it’s implementing salary sacrifice schemes, reviewing employee benefits, or streamlining your workforce structure, we provide tailored solutions to suit your needs. Let us help you navigate these changes and keep your business thriving.
