The 2025 budget introduces substantial changes to employer costs, including higher National Insurance (NI) contributions and proposed new labour laws. These updates may seem daunting, particularly for sectors with a large part-time or lower-paid workforce. However, with strategic planning, businesses can mitigate the financial impact and adapt to the changing landscape.
In this blog, we will break down the key changes, highlight who stands to gain or face challenges, and explore actionable strategies to help businesses navigate this new environment — with support from the right staff and our top recruiters we will be there with you every step of the way.
Changes to National Insurance Contributions
Starting April 1, 2025, the employer NI rate will rise from 13.8% to 15%, while the payment threshold will drop from £9,100 to £5,000. This change will increase costs for many businesses.
For instance, an employee earning £30,000 will cost employers £3,750 in NI contributions, compared to £2,884 previously. Industries that rely heavily on part-time workers, such as hospitality, may feel the impact more acutely due to the reduced threshold, as even part-time employees earning above £5,000 will now contribute to NI costs.
Relief Through the Employment Allowance
A bright spot in the budget is the doubling of the Employment Allowance from £5,000 to £10,500. This adjustment will significantly ease the burden on small and medium-sized businesses.
According to government estimates:
- 865,000 businesses will pay no employer NI at all in 2025.
- One million businesses will pay the same or less than they did previously.
Winners and Losers: Industries at a Glance
Industries That Could Benefit
Sectors employing fewer staff or offering higher average salaries, such as technology, finance, and professional services, may find some relief. These industries can leverage the increased Employment Allowance, which could offset the higher NI rate for smaller teams.
Additionally, businesses implementing salary-sacrifice schemes, where employees exchange part of their salary for non-cash benefits like pension contributions, can further reduce their NI liabilities.
Challenges for High-Volume, Part-Time Employers
Industries like hospitality, retail, and healthcare, which rely on part-time or lower-paid staff, are likely to face greater challenges. The lower NI threshold will mean many employees previously exempt will now increase employer costs. However, the enhanced Employment Allowance offers partial relief, especially for businesses with smaller workforces.
Businesses With Higher-Earning Employees
Organizations with larger teams or higher earners will still face rising costs. While the increased Employment Allowance provides some relief, it may not fully offset the NI hike for businesses with higher salary expenses.
Contractors: A Potential Alternative With Caution
Hiring contractors might seem like a way to avoid rising NI costs. However, businesses must navigate IR35 regulations carefully. The 2021 reform extended IR35 rules to the private sector, making companies responsible for determining a contractor’s employment status. Misclassification risks fines and backdated tax bills.
Contractors can still provide flexibility, but businesses must ensure full compliance with IR35 to avoid costly mistakes.
Strategies for Navigating the New Landscape
To adapt effectively, businesses can:
- Review Workforce Structures: Assess how NI changes impact your staffing and explore ways to optimize roles and schedules.
- Leverage Salary-Sacrifice Schemes: Offer non-cash benefits to reduce taxable salaries and NI contributions, ensuring compliance with National Minimum Wage rules.
- Evaluate Contractor Options: Use contractors strategically but remain compliant with IR35 rules.
- Invest in Technology: Streamline recruitment processes with Applicant Tracking Systems (ATS) to save time and resources.
Most importantly, fine-tune your hiring strategy. With increased costs, hiring the right candidate quickly and effectively is essential to managing your budget.
Conclusion: Stability Through Strategy
While the 2025 budget brings challenges, it also presents opportunities for businesses to innovate and adapt. By leveraging government support, implementing strategic workforce solutions, and using the right tools, businesses can navigate these changes and thrive in a competitive landscape.