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National Insurance increase: A guide for SMBs

Along with tax, inflation and other economic factors, employers are facing a growing financial burden with the April rise in National Insurance contributions.This change adds to the financial pressures businesses face, making it essential to plan ahead. Understanding this National Insurance increase is crucial for all employers, but particularly for small and medium-sized businesses (SMBs) that often operate on tighter margins and have less financial flexibility to absorb rising employment costs.

Employer National Insurance contributions (NICs) are a fundamental cost for businesses, funding vital state benefits and financial security for employees, including pensions and social welfare support. With the employers’ NI increase in April 2025, SMBs must explore strategies to manage rising payroll costs without compromising business growth.

In this article, we’re going to explore how much employer's national insurance is, the specifics of the increase, why it’s happening, and the potential impacts on SMBs. We’ll also talk about how to mitigate rising costs using salary sacrifice schemes through an employee benefits platform, allowing businesses to reduce their NIC liabilities while providing valuable workplace perks.

Portrait of PeopleHR Content Strategy Lead

by India Snowdon

Content Strategy Lead

Posted 21/03/2025

Employees discussing the National insurance increase

Contents

  1. What are employers' National Insurance contributions?
  2. National insurance Increase: Understanding the changes
  3. How much is employers' National Insurance?
  4. The impact of the National Insurance increase on SMBs
  5. How can salary sacrifice schemes help SMBs to reduce employers’ NIC?
  6. The NI increase: A challenge or an opportunity?

What are employers' National Insurance contributions?

Employer National Insurance contributions (NICs) are payments made by businesses on their employees’ earnings above a certain threshold. These contributions help to fund the NHS, state pensions, and other welfare benefits, making them an essential part of the UK’s social security system and economic stability.

Understanding what employers National Insurance contributions are is essential, as these payments significantly impact overall payroll costs for businesses. Currently, employer NICs are charged at a rate of 13.8% on earnings above the secondary threshold of £9,100. This threshold determines at what point employers start paying NICs for their employees, so no contributions are made on the first £9,100 that each employee earns.

 

National insurance Increase: Understanding the changes

In April 2025, the employers’ NI increase rises  from 13.8% to 15% on earnings above the secondary threshold. This means that businesses will have to pay higher NICs per employee, increasing payroll expenses. The change also means a cut in the secondary threshold, from £9,100 a year to £5,000 a year.

The rationale behind the National Insurance increase is to better support public services, particularly the NHS and state pensions, in trying economic times. However, for new and growing businesses, this could pose financial challenges, requiring adjustments to hiring strategies and budgeting.

When does the increase in employers’ NI start?

So, when does the increase in NI start?

The National Insurance increase takes effect from 6 April 2025. Businesses must therefore account for this change when planning their upcoming payroll budgets. Even after April, it’s important to stay informed about new and changing NIC rates, as they can affect long-term financial planning and payroll compliance requirements.

How much is employers' National Insurance?

Employer NICs are calculated based on employees’ earnings above the secondary threshold. Currently, employer NICs stand at 13.8%, with the secondary threshold at £9,100. With this April’s employers’ NI increase, the rate for contributions will change to 15% of employee earnings over £5,000. Businesses can use an NIC calculator to work out these contributions accurately.

This change poses considerable payroll expenses for businesses. For example, a company with 500 employees earning an average of £30,000 each could face an additional £150,000 in annual NIC costs under the new rate. It’s therefore important to plan ahead and take steps to mitigate these expenses without compromising on business growth.

The impact of the National Insurance increase on SMBs

The NI increase will have significant implications for SMBs. Unlike larger corporations, smaller businesses often operate on tighter margins, making these changes a critical concern.

Profitability

Higher payroll costs due to the employers’ NI increase will eat into profit margins, forcing SMBs to either absorb the costs or pass them on to customers through higher pricing. This can make it harder for smaller businesses to remain competitive in their respective markets.

Hiring decisions

The financial implications of the National Insurance increase could make SMBs hesitant to take on new employees. With increased employment costs, businesses may delay hiring or opt for alternative strategies, such as outsourcing or relying more on contractors, which could hinder workforce stability, growth and innovation.

Business operations

The additional financial burden may lead SMBs to reconsider investment in growth initiatives, technology or staff training. Business owners must assess how the National Insurance increase affects their operational budgets and find ways to offset additional costs wherever possible.

How can salary sacrifice schemes help SMBs to reduce employers’ NIC?

Salary sacrifice schemes offer a strategic way for businesses to mitigate the employers’ NI increase while also providing tax-efficient benefits to employees. In these schemes, employees agree to exchange part of their salary for non-cash benefits, reducing their taxable earnings and, consequently, lowering employer NICs.

Popular salary sacrifice benefits include pension contributions, cycle-to-work schemes, electric vehicle leasing and Holiday Trading vouchers. These schemes not only help businesses to cut NIC expenses but also offer valuable perks, which can drive employee engagement and give employers a competitive edge. In particular, flexible benefits packages allow employees to choose what they actually want and need.

The Access Group’s report on how employee benefits can help offset NI and wage increases offers key insights and savings statistics to help businesses to understand the financial benefits of salary sacrifice. By implementing these schemes effectively, SMBs can reduce their NIC liabilities while improving the employee experience. For example, a manufacturing business with around 6,500 staff that ran the Cycle to Work scheme saved an estimated £14,000 in 2024 in NICs. With the National Insurance increase, this saving would have been over £15,200.

The NI increase: A challenge or an opportunity?

The National Insurance increase presents both challenges and opportunities for SMBs, and understanding the implications of the employers’ NI increase is crucial for long-term stability. While higher employer NICs will increase payroll costs, businesses that plan proactively can manage the impact through salary sacrifice schemes and efficient financial strategies.

PeopleHR’s employee benefits platform simplifies the management of salary sacrifice schemes, helping businesses to reduce costs while enhancing employee benefits. To see how we can support your business, watch our demo or contact one of our experts today.

Portrait of PeopleHR Content Strategy Lead

By India Snowdon

Content Strategy Lead

India is an accomplished writer and content strategist within the Access PeopleHR team. With a deep passion for crafting content focused on HR software and Payroll, she tackles the questions every HR Manager is asking. India's engaging and informative articles equip readers with the knowledge they need to transform their HR and Payroll Strategies.