On 6 April 2025, significant changes to employers’ National Insurance Contributions (NICs) came into effect in the UK, as announced in the 2024 Autumn Budget. These reforms aim to increase government revenue but have raised concerns among businesses about rising employment costs and potential impacts on hiring and wages.

1. Employer NIC Rate Increased to 15%

The standard rate of employer NICs (Class 1 secondary contributions) has risen from 13.8% to 15%. This rate applies to employees’ earnings above the secondary threshold.

2. Lower Secondary Threshold

The earnings threshold at which employers begin paying NICs for an employee has decreased from £9,100 to £5,000 per year. This change means that employers now pay NICs on a broader range of employee earnings, including those of part-time and lower-paid workers.

3. Employment Allowance Doubled and Eligibility Expanded

To mitigate the impact on smaller businesses, the Employment Allowance has increased from £5,000 to £10,500 per year. Additionally, the previous restriction that disqualified employers with NIC liabilities over £100,000 from claiming the allowance has been removed. Now, more businesses can benefit from this relief, regardless of their NIC bill size.

4. Enhanced Small Employers’ Relief

Employers eligible for Small Employers’ Relief—those who paid £45,000 or less in Class 1 NICs in the previous tax year—can now reclaim 108.5% of statutory payments such as maternity, paternity, adoption, and shared parental pay. This is an increase from the previous 103% reimbursement rate.

These changes are expected to generate approximately £25 billion annually for the government. However, they also increase the financial burden on employers. Businesses may respond by adjusting hiring plans, limiting wage increases, or passing costs onto consumers.

The reduction in the secondary threshold particularly affects employers of part-time and lower-paid workers, who were previously below the NIC threshold. While the increased Employment Allowance offers some relief, especially for small businesses, the overall rise in employment costs remains a concern.

Preparing for the Changes

Employers should:

• Assess Employment Costs: Evaluate the financial impact of increased NICs on staffing budgets and consider adjustments as needed.
• Utilize Available Reliefs: Determine eligibility for the enhanced Employment Allowance and Small Employers’ Relief to offset increased NIC liabilities.
• Communicate with Employees: Inform staff about any changes that may affect their employment terms or benefits.

Staying informed and proactive in response to these changes will help businesses navigate the evolving tax landscape effectively.