Employers' National Insurance: How 2025 rise will affect businesses and what do to now

Most growing businesses hire new employees as part of their growth strategy, but with the rising costs of National Insurance, businesses are having to rethink their growth strategy and workforce planning.

In the 2024 Autumn Budget, the UK government announced an increase in employer National Insurance contributions (NICs), which came into effect in April 2025. This, on top of increases in the National Minimum Wage and the National Living Wage, means businesses are really feeling the effects of the NI increase.

Whether you run a small, medium or large business with employees, you may be wondering how to manage any additional costs. The national insurance hike will undoubtedly increase your wage bill and NIC liability. But what can you do to offset higher costs in your business?

In this blog, we’ll explore the key changes, how they may affect your business, and various strategies employers can use to lessen the impact of the extra costs.

What are employer NICs, and how do they work?

Employer National Insurance Contributions are a business’s payments to the UK government based on its employees’ income.

National Insurance Contributions provide access to certain benefits, such as the State Pension, unemployment benefits, and help fund the NHS.

Employers calculate and pay NICs as part of their payroll processing. Employees also make contributions, which are deducted from their salaries through PAYE.

Employer NICs are a percentage of an employee’s earnings above a set threshold. National Insurance increases or decreases are normally announced as part of the government’s annual budget.

Some businesses qualify for the Employment Allowance, which can reduce an employer’s annual NICs bill. Eligible employers can claim the Allowance to reduce the cost of hiring people in their business.

How does the increase in employer NIC affect employers?

The 2024 Autumn Budget saw some big changes being announced on employer NICs. These changes are:

An increase in the employer Class 1 NICs rate

The Chancellor announced a National Insurance increase in the rate of employer NICs from 6 April 2025. This change has increased the rate of employer Class 1 National Insurance Contribution from 13.8% to 15.0%.

This rate is the percentage of an employee’s salary above £5,000 that must be paid as employer NICs.

An increase to the Employment Allowance

To offset the additional costs of the Employers National Insurance rise and increased payroll costs faced by businesses, the Employment Allowance was increased from £5,000 to £10,500.

The Employment Allowance means qualifying businesses don't pay the first £10,500 of employer NICs. There was previously a £100,000 eligibility threshold for the Employment Allowance, but this was removed from 6 April 2025, meaning all eligible employers can now benefit from the Employment Allowance.

A reduction in the Secondary Threshold

There has also been a reduction in the per-employee threshold (the threshold at which employers become liable to pay National Insurance). This is known as the Secondary Threshold.

The Secondary Threshold was reduced from £9,100 to £5,000 a year on 6 April 2025. This reduction will be frozen until 5 April 2028.

Beyond 2028, the government plans to adjust the Secondary Threshold annually based on the CPI (Consumer Price Index).

How to mitigate the Employers National Insurance Increase

While the Employers National Insurance increase is not good news for businesses, there are several strategies that business owners can take to offset some of the rising costs in their business.

Here are our tips on how you might mitigate the Employer National Insurance increase in the coming months.

1. Use the Employment Allowance

The Employment Allowance is designed to help smaller businesses reduce their NIC bill. The Employment Allowance will directly reduce the NICs you pay.

If you’re not already claiming the Employment Allowance, then check your eligibility for it. Then ensure that you’re claiming the full allowance available. This amounts to up to £10,500 per year from 6 April 2025.

The impact of the increased Employment Allowance will depend on the size of the business and the number of people it employs. The bigger the business, the less impact the increase will have on overall payroll costs.

2. Implement salary sacrifice schemes

Salary sacrifice allows employees to give up part of their salary in exchange for non-cash benefits. Salary sacrifice arrangements can reduce both NI for the employer and the employee as salary is contributed before tax and National Insurance contributions (NICs) are calculated. This means both the employee wins by paying less NI and income tax and the employer reduces their NI liability as well.

Salary sacrifice arrangements can be used for things like:

• Childcare vouchers.

• Additional pension contributions

• A company car.

Speak to our expert tax team if you are considering offering salary sacrifice arrangements to your employees to ensure you are tax compliant and that the arrangements are processed correctly via your payroll software.

3. Implement a flexible benefits package

Giving your employees a flexible benefits package can be an alternative to salary increases. Flexible benefit packages can offer a wide choice of benefits and value to employees and can help keep your salary bill down.

They can help to increase employee satisfaction and retain staff without significantly increasing your payroll costs.

Benefits you could offer are:

• Childcare

• Health care, such as private medical insurance or dental insurance.

• Pension contributions.

• Gym memberships.

• Flexible working arrangements.

• Travel allowances.

4. Review your workforce needs and planning

Now may be a good time to review your staffing needs. You may decide that part-time or flexible working arrangements could reduce your payroll costs, without impacting business productivity or employee satisfaction.

Using freelancers could reduce your salary bill and provide future expertise needed for your business. Another option may be to take individuals on fixed-term contracts instead of permanent roles for some positions.

5. Consider salary vs dividends

As a business owner, now is the time to review your current remuneration and salary-dividend split.

Changing the balance between these may help to reduce your NI costs as dividends are not subject to NICs. However, you must consider what reducing NI contributions would mean to future benefits such as the State Pension.

Consult our tax advisors here at dns, who can advise you on the best salary vs. dividend split for you.

6. Undertake comprehensive tax planning

Using a tax advisor to undertake a full tax planning exercise with you could save you money. They will ensure that you are aware of and using all available tax reliefs, tax credits, and allowances.

This review can include both corporate and personal tax planning and could save you thousands if there are tax reliefs you are currently not benefiting from.

7. Review your financial forecasts

Understanding your cash flow and profit margins is critical in business management. You’ll need to change these forecasts to include the increased NIC rates. At dns accountants, we assist clients with all their financial forecasting needs.

8. Revisit your pricing strategy

If there are no other savings or changes that can be made across your business to reduce the impact of the National Insurance increase, then you may need to evaluate whether you raise prices to customers without hugely damaging the customer relationship.

9. Claim NICs relief when hiring veterans

The government offers businesses an opportunity to hire armed forces veterans. This incentive means businesses don’t pay employer NICs for the first 12 months of a veteran’s civilian employment, up to an earnings threshold. This could help mitigate some of the NI increases for 12 months when hiring new staff in your business.

10. Embrace technology

Whilst there may be an upfront investment in technology, streamlining processes through the use of tech could mean you need to employ fewer people in the future. Advancements in AI could mean that you can reduce the size of your team or take on fewer people in future.

Summary

Employer National Insurance Contributions have risen from 6 April 2025, which could have a huge financial impact on your business. If you haven’t already, then now is the time to consider all the options above to help you try to mitigate increased costs your business faces.

Changes like these are a good opportunity to rethink your strategy and revisit your financial forecasting and business plans. Consider how you can streamline operations, revisit your pricing strategy, embrace technology and change working arrangements.

Whilst the NI changes are not good for businesses, every business owner should see them as an opportunity to change, improve, and grow their business differently.

For more help and advice on mitigating the Employer NI increases, contact dns accountants today on 03330600706 or email enquiry@dnsaccountants.co.uk.

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