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March 7, 2025
Key Takeaways
From April 2025, employers’ National Insurance contributions will rise to 15%, and the threshold drops from £9,100 to £5,000—significantly increasing hiring costs across many sectors.
With April 2025 fast approaching, now is the time to take action to make sure that your business is ready for the upcoming changes to employers’ National Insurance contributions. These changes were announced in the 2024 Autumn Budget, so employers have had some time to get their heads around the changes ahead.
Now is a great time to make sure you fully understand the changes and how they might impact your business. You can then make sure you have taken the appropriate steps to prepare. So, let’s look at the changes coming into play on 6th April 2025.
National Insurance is a tax on earnings for both employed and self-employed individuals. Contributing to the National Insurance system determines eligibility for things like Statutory Maternity Allowance and State Pension.
National Insurance is paid in two parts, with some coming out of the employee’s earnings, and the employer contributing a portion. This is why the cost of hiring an employee is always more than just their basic salary.
In April 2025, there will be changes to three parts of the employer contributions, including:
Organisations most likely to be affected by these changes are those with Secondary Class 1 National Insurance contributions and those with employees earning at least £5,000 a year.
It is the responsibility of the employer to make sure they are making sufficient contributions. If you have any doubts about changes to your obligations, speak to an HR or tax advisor. If you have business insurance, you may be able to access free advice on this topic from your insurance provider.
The changes will involve reducing certain thresholds and increasing contributions, which will mean that more employers will have to make contributions, and contributions will increase for those already paying National Insurance contributions. Some smaller businesses will be protected from these increases through changes to the Employment Allowance Rate. Let’s explore each of these changes in more detail, and see how this will impact businesses.
The first change to be aware of is that the threshold for NI contributions will be reduced from £9,100 per year to £5,000 per year. This means that more employers will now have to think about National Insurance contributions than before.
The Secondary Threshold is an amount set by the government that will determine if an employer has to pay national insurance contributions. Small businesses and those with a part-time, casual or seasonal workforce are most likely to be impacted by this change, as it means that employers will have to make NI contributions for all employees earning over £5,000 per year.
These changes will come into effect on 6th April 2025 and will remain until 5th April 2028. After this time, the Secondary Threshold will increase in line with the Consumer Prices Index (CPI).
Alongside these changes, the amount that employers will pay is also set to increase. This amount is currently set at 13.8% and will increase to 15% on 6th April 2025. Employers will need to make provisions for this higher contribution rate and ensure this is factored into future hiring decisions.
For some employers, it could mean that hiring new employees is off the cards, particularly if they are both caught up in the threshold decrease and the contributions increase.
The final change employers should be aware of is the increase in the maximum Employment allowance from £5,000 to £10,500. This change will allow eligible employers to pay less in national insurance and is designed to protect small businesses from unfair hardship as a result of the other changes.
| Topic | Key Insight |
|---|---|
| NIC Rate Increase | Employer NIC climbs to 15% from April 2025 |
| Threshold Reduction | Secondary threshold drops to £5,000/year |
| Employment Allowance | Raised to £10,500; eligibility restriction removed |
| Sector Impact | Hospitality faces ~£1 bn in extra employer NIC costs |
| Business Response | 82% of firms plan to reassess business strategies |
While some businesses will face cost increases as a result of these changes, others might find that they remain protected from the National Insurance hike.
The government made a promise in their election manifesto that they would not impose tax increases on employees in order to fund their plans, which has led to this stance of placing the burden on employers. Ultimately, it could be that employees also pay the price if it leads to hiring freezes and a loss of opportunities, but this remains to be seen.
One survey carried out by the AAB found that 58% of businesses surveyed believe that the changes will impact their recruitment plans. 54% said that their prices would be impacted, and 30% said that day-to-day operations could be impacted. Just 18% said the changes won’t have an impact on their business.
It’s likely that organisations will face higher operating costs as a result of the increase in contributions. Those with a larger workforce will naturally face greater impact, so the changes may disproportionately impact certain sectors such as hospitality and retail.
These changes might have an impact on growth plans, including expansion, wage growth and hiring. Those sectors already facing an uphill battle to stay afloat amid rising costs might find that the increase in National Insurance contributions is the final nail in the coffin.
Higher Payroll Costs
The NIC rate rise and lower threshold mean many employers—especially in labour-intensive sectors—face significantly higher headcount costs.
Buffer for Small Employers
Boosted Employment Allowance gives smaller businesses much-needed breathing room amid rising NIC liabilities.
It’s essential to be prepared for the changes and to understand if and how they might impact you. Speak to an HR or tax professional to help you better understand how these changes are going to impact your business now and in the future.
For example, you might be exempt now, but it’s important to know what growth plans and changes in your business might trigger a change in your status. This will enable you to properly plan for the future.
Forecasting will help you to better understand your current position and how the changes will impact you. This could trigger essential changes such as an increase in prices, cost-cutting elsewhere in the business, or a change in hiring plans to account for the increase in recruitment costs.
You should also review your payroll software and make any upgrades that might be required to take action on the changes. If you don’t currently make NI contributions and are expecting this to change, you may need to upgrade your accounting software to be able to manage this.
If you are concerned about the impact on your business, there may be tax-efficient benefits you have yet to explore. Speak to an accountant or tax specialist about options such as salary sacrifice schemes or increasing pension contributions to help offset the increase in costs.
These changes might be unwelcome for your business, but it is far better to be prepared than to be caught off guard. Through accurate forecasting and astute planning, you can quickly adapt to changes of this nature and ensure that business operations and growth are not interrupted.
An increase in NI contributions for employers doesn’t have to mean a pause on recruitment or growth plans. This could be the trigger many companies need to start exploring automation and AI within the workplace to help drive further efficiencies.
Want support managing rising recruitment costs? Submit your vacancy to CMD Recruitment today—let us help you find cost-effective talent solutions in a dynamic landscape.
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