In the October 2024 budget, key changes to National Insurance Contributions (NICs) were announced which will take effect from 6 April 2025.

Employees will not see a change in their NICs bill from April 2025 but the same cannot be said for employers. Until 5 April 2025, employers have generally paid Secondary Class 1 NICs at 13.8% on amounts that employees earn in excess of the secondary threshold of £9,100 per year. From 6 April 2025, this rate will increase to 15% and the secondary threshold will be reduced to £5,000. This therefore increases both the rate of National Insurance (NI) payable and the amount on which it is charged.

For businesses with seasonal workers, the impact may also be significant. NICs are charged based on the thresholds for the employer’s payment period. Therefore, if an employee is paid weekly, any earnings above £97 per week will be charged to NI at 15%, even if their total earnings for the year are less than £5,000.

There is, however, some good news for some small businesses in the form of changes to the Employment Allowance. Eligible businesses can currently reduce their NI liability by up to £5,000. This figure is set to increase to £10,500 from April 2025. The Employment Allowance is available to those running a small business or charity with at least one paid employee (sole director companies are not eligible) earning more than the Class 1 national threshold of £5,000. Furthermore, businesses were not eligible to claim the Employment Allowance if their NICs bill in the previous tax year was over £100,000. This restriction will be lifted from April 2025, meaning that more businesses may be able to qualify for the relief. The changes to the Employment Allowance aim to alleviate some of the pressure that will be felt by smaller businesses as a result of the Class 1 Secondary NIC rates increasing and the reduction of the secondary threshold.

In addition to an increase in NI costs, the National Minimum Wage and the National Living Wage will increase from 1 April 2025 across all age ranges, with the new minimum wage for over 21s being £12.21 (an increase of 77p). This change will further increase the payroll costs for a large number of businesses and leave them needing to take a look at their budget and forecasts.

Employers may wish to consider methods to reduce their employees’ earnings which are subject to NICs. This could include offering employees schemes such as pension contributions through salary sacrifice, cycle to work schemes and electric vehicle company car schemes.

The overall impact on employers will therefore depend on the profile of their payroll. It is recommended that each employer prepares forecasts of how the changes will affect them.