What Employers Need to Know About the NIC Increase in 2025

The UK government plans to increase Employers’ National Insurance Contributions (NICs) in 2025. This change will impact businesses of all sizes and could have far-reaching effects on wages, hiring, and even product prices. Let’s break it down in plain terms so you know what’s coming and how it might affect your business.

What Are Employers’ NICs?

Employers’ NICs are essentially a tax businesses pay on their employees’ wages. When your staff earns above a certain threshold, you pay a percentage of their earnings as NICs. Starting in 2025, that percentage will go up, making it more expensive for businesses to employ people.

How This Might Affect Your Business

1. Higher Employment Costs

The most immediate effect? Your costs are going up. You’ll have to pay more in NICs for every employee earning above the threshold.

• For large businesses: You might be able to absorb the increase, but it’ll still eat into your budget.

• For smaller businesses (SMEs): This could feel like a big squeeze. Many SMEs work with tight profit margins and will need to make tough decisions—such as cutting other expenses, pausing hiring, or raising prices.

2. Wage Growth May Slow Down

Although this tax doesn’t directly come out of employees’ pockets, businesses might offset the extra costs by freezing salaries or offering smaller raises.

• Why it matters: Employees might feel the pinch, especially in competitive industries like tech and finance. Businesses that can’t keep up with salary expectations could lose skilled workers to better-paying employers.

3. Fewer New Jobs

Hiring new staff will cost more, so some businesses might slow down or stop hiring altogether.

• Which sectors are most affected? Labour-intensive industries like retail, hospitality, and care services are likely to feel this the most. These industries might turn to temporary or part-time roles instead of full-time positions to avoid extra costs.

What Could Happen Next?

1. Rising Prices

If businesses can’t absorb the higher costs, they might pass them on to customers. For example:

• A café might increase coffee prices.

• A retailer might bump up the cost of goods.

This could add to inflation, making life more expensive for everyone.

2. More Automation and Outsourcing

To save money, businesses may invest in automation (like self-checkout kiosks or robotics in factories) or outsource jobs to countries where taxes and wages are lower.

• The downside? This could mean fewer job opportunities for UK workers.

3. Impact on the Economy

The government plans to use the extra NIC revenue to fund services like healthcare and pensions. However, if businesses cut jobs or wages, there could be less money circulating in the economy, which might reduce the overall tax revenue.

What Can You Do to Prepare?

Here are some ways to manage the changes:

• Improve efficiency: Look for ways to streamline your operations and cut unnecessary costs.

• Invest in training: Boost productivity by upskilling your workforce.

• Adjust hiring strategies: Consider part-time or temporary roles to balance costs.

The government might also step in with measures to help businesses, such as increasing the Employment Allowance (a relief for smaller employers) or offering tax breaks for innovation and training. Keep an eye out for these updates.

The Big Picture

The NIC increase will undoubtedly pose challenges for businesses, particularly SMEs and sectors with high labour costs. While it aims to support public services, it might slow job creation, wage growth, and economic activity. Employers, employees, and policymakers will need to work together to manage these changes.

By planning ahead and staying informed, you can minimise the impact on your business and turn these challenges into opportunities.

Need help preparing?

Whether it’s adjusting your payroll strategy or planning for operational changes, start the conversation now. Your accountant or HR team will thank you later.