UK Employer National Insurance Increase 2025: How Rising Payroll Costs Will Impact Your Business

06/09/2025

Discover how the 2025 National Insurance changes will impact UK employers. Learn about rising payroll costs, NIC rate increases, and strategies to manage your business finances effectively

As of 6 April 2025, UK employers are facing significant changes to National Insurance Contributions (NICs), following the government's fiscal adjustments aimed at addressing the public finance shortfall. These modifications are set to impact payroll costs, employment practices, and overall business operations.

Key Changes to Employer NICs

The primary adjustments introduced are:

Increase in Employer NIC Rate: The rate has risen from 13.8% to 15% on earnings above the secondary threshold. This 1.2% increase translates to higher costs for employers per employee. For example, an employee earning £20,000 annually would result in an additional £746 in employer NICs, while an employee earning £100,000 would lead to an extra £1,706 in employer NICs TaxScape.
Reduction in Secondary Threshold: The threshold at which employers become liable to pay NICs has decreased from £9,100 to £5,000 per year. This change means that employers will now incur NICs on a broader range of employees, increasing the number of individuals subject to these contributions GOV.UK.

Support Measures for Employers

To mitigate the impact on businesses, especially small enterprises, the government has introduced the following support:

Increase in Employment Allowance: The Employment Allowance, which allows eligible employers to reduce their annual NICs bill, has been increased from £5,000 to £10,500. Additionally, the previous £100,000 threshold for eligibility has been removed, enabling more businesses to benefit from this relief House of Commons Library.

Implications for Businesses

These changes are expected to have several effects on the business landscape:

Increased Operational Costs: With higher NICs, businesses will face increased payroll expenses, potentially affecting profitability.
Potential Adjustments in Employment Practices: Some employers may respond by reducing staff hours, limiting wage growth, or even downsizing their workforce to manage increased costs The Guardian.
Impact on Low-Wage Sectors: Industries with a high proportion of low-wage employees, such as hospitality and retail, may be disproportionately affected, leading to greater financial strain Financial Times.

The 2025 changes to employer National Insurance Contributions represent a significant shift in the UK's employment tax landscape. While the increased Employment Allowance offers some relief, businesses must carefully assess the financial implications of these adjustments. Strategic planning and consultation with financial advisors will be crucial for employers to navigate these changes effectively and sustain their operations in the evolving economic environment.