How to mitigate the impact of the rise in employers’ National Insurance contributions
April 2025 will see UK employers hit with considerable wage bill increases.
The legal minimum wage for employees over 21 is increasing by 6.7% to £12.21 an hour, and for those aged 18-20, the minimum wage will rise to £10 per hour (a 16.3% rise).
Additionally, employer National Insurance Contributions (NIC) will rise to 15% from April 2025, increasing the wage bill even further.
Understanding the impact
There is undoubtedly a financial impact.
After the autumn Budget announcement, many large organisations, particularly in the retail and hospitality sectors, announced the likelihood of restructuring and cuts.
When business expenses increase, employers may face the following challenges and potential strategies:
- Reduced profit margins: The increased costs may squeeze profit margins, making it harder to afford pay raises or bonuses.
- Pressure on wages: Some employers may be forced to limit wage increases or even consider pay cuts.
- Reduced hiring: Some businesses may become more cautious about hiring new employees.
Employers must balance business needs with their people strategy since some decisions may negatively impact employee retention initiatives.
The cost of living remains high, and while employees may understand additional pay increases and bonuses may be affected, pay cuts are unlikely to be tolerated, leading to a loss of talent.
Hiring freezes and high employee turnover negatively impact productivity and profitability, so employers must find a balance.
Mitigating the impact
Whether you’re a business that relies on minimum wage employees or not, the NIC increase alongside the minimum wage increase means every business will feel the financial impact.
Many will take action, but short-term cost-cutting activities can have longer-term consequences. If a company-wide pay rise isn’t viable, there are steps employers can take to reduce the impact.
Consider alternative benefits and perks
Employee benefits form part of a strong employee value proposition (EVP) – vital for attracting talent and retaining employees.
Today, employee benefits aren’t just about creating an attractive package.
When you embed the right benefits into your business, like those that stretch employees’ money further, they can offer more value for money than a pay increase.
For example, we challenged 22 colleagues to only use their Pluxee Cashback Card and Employee Discounts for as many of their everyday and special purchases as possible. By the end of the 21 day challenge, they amassed a combined pot of £658.67, made up of discount savings and cashback earnings.
Our blog, How do you boost engagement with employee benefits?, highlights that the amount saved and earned averaged out at nearly £10 per employee per week, almost £520 per year per employee at the very least. Factor in more ad hoc, expensive purchases, Christmas, birthdays and holidays, and this total could more than double.
It's time for employers to consider embedding financial wellbeing benefits and driving employee uptake to help their people stretch their salaries without hurting their organisation’s bottom line.
Save on NIC with salary sacrifice
Salary sacrifice schemes are a hot topic, given the rise in employer NIC.
Examples of strategies that also saves employees money include cycle to work schemes and green car schemes.
These schemes reduce an employee's tax and NIC contributions while making scheme repayments.
Since the salary sacrifice scheme repayment happens before NIC and tax calculations (gross level), employers pay less NIC throughout the scheme repayments.
Each scheme is different, but at the end of a 48-month green car salary sacrifice scheme, an employer could save from £3,750 upwards.
The more employees taking on a salary sacrifice scheme or an annual leave purchase scheme, the more money employers save.
Looking ahead to 2025 and beyond
Change is inevitable, but cuts don’t have to be.
Employers have solutions at their disposal that, when effectively embedded into their business, can help them offer employees more for less.
When those solutions save businesses money, too, it’s a win for everyone, driving engagement, retaining talent and opening up a world of opportunities for all.
In partnership with Pluxee UK
Pluxee UK, is a leading employee benefits and engagement partner that opens up a world of opportunities to help people enjoy more of what really matters in their lives.
