The Employer NIC Increase: 6 Ways You Can Mitigate the Cost

The Autumn Budget 2024 announced major changes that will have far-reaching effects on both individuals and businesses alike. One of the most significant changes, coming in very soon, is the increase in employers’ NIC contributions. From April 6^th 2025, the rate will rise from 13.8 to 15%. That’s not all, the threshold at which employers start paying will also decrease from £9,100 to £5,000.

In this article, we’ll be delving into what the changes might mean for your business and provide you with ways in which you can manage the cost.

What the increase in Employers NIC means for your business?

For many businesses this isn’t just a significant increase in employment costs – it has the potential to impact other aspects of your business in both the short term and the long term.

For example, payroll expenses might increase, it could lead to more expensive hiring costs and result in re-evaluating budgets. You might find yourself asking how will this impact my bottom line? Can I afford to take on new staff? Will I need to make cuts elsewhere?

The impact that the rise will have on your business does depend on how many people you have in your teams. Reviewing the forecasts you have in place, or creating forecasts if you don’t have them, is an essential first step to understanding how the increase will impact your business and future profits, and therefore critical before making any plans to manage the costs. It also means reviewing any strategic plans and ensuring that you can still afford them, whether you need to change the timing or whether you need to explore options for additional funding to afford them.

To truly understand the impact, you will need up-to-date management information, professional forecasting and a clear understanding of the end goal for your business.

6 Ways You Can Mitigate the Cost

1.Implement Salary Sacrifice Schemes

Salary sacrifice arrangements allow employees to exchange a portion of their salary for non-cash benefits. These allow employees to take home more of their salary as they pay less tax. This will also reduce the gross salary on which NICs are calculated, thereby lowering the contributions for both employer and employee.

Some examples of salary sacrifice arrangements are:

• Pensions
• Private healthcare
• Electric car schemes
• Cycle to work schemes

There are numerous schemes available that can help you mitigate the impact of this rise. It’s essential to ensure that these arrangements do not reduce an employee’s earnings below the National Minimum Wage.

2.Utilise the Increased Employment Allowance

To support smaller businesses, the government is increasing the Employment Allowance from £5,000 to £10,500 and removing the £100,000 eligibility threshold, expanding this to all eligible employers. This means qualifying businesses won’t need to pay the first £10,500 of employer NICs.

3.Explore Flexible Working Arrangements

Offering flexible working options, such as remote work, can lead to cost savings in areas like office space and utilities. Additionally, it may enhance employee satisfaction and retention, potentially reducing recruitment and training costs.

4.Consider Outsourcing

Outsourcing functions such as payroll, HR, or marketing can provide access to specialised expertise and allow the business to focus on core activities. This approach can also convert fixed employment costs into variable costs, offering greater financial flexibility.

Specialist professional advisor firms can also provide virtual finance functions, giving access to senior, experienced finance professionals in a cost-effective way.

5.Review Workforce Structure

Assessing the current workforce composition can identify opportunities for increased efficiency. This might involve investing in automation or technology to streamline operations, thereby reducing reliance on manual labour. However, it’s crucial to balance such changes with the potential impact on employee morale and service quality.

6.Implement digital solutions to drive efficiencies

By harnessing digital solutions, businesses can gain instant, accurate insights to make data-driven decisions regarding changes like NICs. These tools eliminate the need for manual budgeting, allowing companies to redirect resources toward growth. With the ability to adjust budgets and forecasts seamlessly, businesses can respond quickly to changing circumstances. Additionally, digital solutions help save money by reducing reliance on salaried employees, eliminating costs associated with National Insurance and pensions.

Digital solutions aren’t just for streamlining accounting processes either, there is so much opportunity in this space for businesses to utilise digital tools for delivery of their own products and services too.

How Can AAB help?

These strategies can help you to mitigate the impact of increased NICs, however, it’s important to make decisions based on all the detailed information about your own business, and liaise with the relevant advisors to support you with any changes required.

Review each option carefully and discuss with an expert to gain a clear understanding of which option will best benefit your business, and provide you with tailored guidance on how to navigate these changes effectively.

At AAB, our team have assisted various businesses with these changes, working with experts from across our business advisory, people, employee benefits, payroll and employment taxes, and corporate finance teams, bringing together all of this expertise to identify the right solutions for every individual client.

If you have any queries about the increase in employers NIC or how AAB can help you to set yourself up for success please do not hesitate to get in contact with Joel Topham, Richard Petrie, or your usual AAB contact.