Your guide to 2025 National Insurance rate changes

Threshold decrease

Starting in April, the Employment Allowance threshold will be reduced from £9,100 to £5,000. This means businesses will now have to start paying NIC on employee earnings above £5,000, significantly lowering the threshold compared to previous years.  

Employer contribution rate hike

The employer contribution rate for Class 1 National Insurance is set to increase from 13.8% to 15%. While this may seem like a modest hike, when compounded over large payrolls, the financial impact adds up rapidly.  

Across age brackets, the National Minimum Wage and National Living Wage will rise. While workers aged 21 and over will get a raise of 77p per hour (an 8% increase on their current rate), the most noticeable jump comes to those under 18 and apprentices, at an 18% increase on the 2024 rate.

The combination of these changes will undoubtedly tighten margins for businesses across the board. To bring these costs into perspective, here are some examples based on typical workforce structures in small, medium, and large businesses.  

• For a small business with 15 employees working full-time on living wage

This business could see an additional annual cost of at least £30,000, factoring in the increased wages and the employer National Insurance contribution hike.

• For a medium-sized enterprise with 50 employees

Depending on salary brackets, the increase could range from £50,000 to more than £100,000 annually, especially if many staff members sit close to the minimum wage threshold.  

• For a large corporation with 200+ employees

Costs could soar into six and seven-figure territory, particularly in sectors like retail or hospitality that rely on a high percentage of minimally compensated workers.

These added expenses create pressure not only on payroll budgets but on broader operational costs and investment opportunities within a business. 

While the upcoming changes present significant challenges, it might seem like the simplest solution is to reduce headcount and freeze salaries. However, such reactions are likely to have a long-lasting effect on the workforce and lead to poor morale, reduced productivity and difficulty retaining talent. Instead, careful planning and evaluation of all other strategic options can be a much better and more sustainable way of combatting the challenges.

In this blog series, we’ll look to explore the options available to businesses in detail, including:  

1. Optimising workforce efficiency – evaluate your operations to identify where your organisation could benefit from upskilling, restructuring or flexible working
2. Reducing operational overheads – look into automating operations, making the most efficient use of facilities or even outsourcing some tasks
3. Review compensation and benefits packages – explore introducing salary sacrifice schemes, financial wellbeing support and non-monetary perks

While the changes will impact almost every business, it doesn’t have to be detrimental. Staying informed, being proactive, and engaging with your team to create solutions can soften the impact while maintaining a healthy workplace culture.

This is the first of a four-part blog series designed to help businesses not just adapt to these changes but thrive in the face of them. Over the next few weeks, we’ll take a deep dive into actionable strategies tailored for businesses of different sizes and industries. By building a robust plan before April, you can confidently meet these challenges head-on.