The recent announcement of the National Insurance changes in 2025 has left many employers wondering how it will impact their business. From rising costs to new thresholds, there’s a lot to unpack. But don’t worry, we’re here to break it all down for you.
As part of the government’s first autumn budget, Chancellor Rachel Reeves has confirmed that National Insurance contributions are set to rise – changes that are likely to be significant for businesses of all sizes. The upcoming adjustments to National Insurance are among the most substantial seen in recent years, designed to raise a huge £25 billion annually. Starting from 6th April 2025, here’s what employers need to know:
So, what does this mean? In short, businesses will be paying more for every employee. These measures will remain in place until at least April 2028, with adjustments expected to be made in line with inflation.
The combined changes in NIC inevitably put additional pressure on small businesses, as the new requirements represent a big increase in costs. To put it into perspective, businesses will have to pay approximately £770 more in NI for each minimum wage worker, while employees earning a median salary will cost their employers an additional £900 per year.
In order to support small businesses, the Employment Allowance (EA) will be increasing from £5,000 to £10,500 to shield them from some of the increasing costs, and the current Employment Allowance cap will also be removed. Larger companies, on the other hand, will face the full brunt of the rising employment expenses.
Employers currently pay 13.8% in National Insurance on earnings above £9,100 annually, with contributions set to increase to 15% from April 2025. At the same time, the earnings threshold will drop to £5,000, meaning employers will face higher payroll costs.
While contributions toward employee pensions remain exempt from NI, offering some relief, these changes are expected to have a significant impact on overall payroll expenses.
Employees start paying National Insurance contributions as soon as they turn 16 and earn more than £242 per week, or if they’re self-employed with profits exceeding £12,570 per year.
Recent changes have lowered the rate employees pay. In 2024, the Class 1 NI rate dropped twice – from 12% to 10%, and then again to 8%. For context, a worker earning £35,000 a year saved about £900 annually thanks to these reductions.
Here’s how the current rates work:
For those in the Pay As You Earn (PAYE) system, NI contributions are automatically deducted from your salary each pay period. It’s worth noting that NI is calculated independently each week or month, rather than accumulating like income tax.
It’s understandable that these changes might feel overwhelming. But there are steps you can take to ease the financial burden.
Consider introducing or expanding salary sacrifice schemes. These arrangements allow employees to redirect a portion of their earnings toward benefits like workplace pensions. Not only does this reduce the salary subject to NI, but it can also help employees avoid higher tax brackets.
Now’s the time to take a closer look at your spending. Identify any non-essential costs that can be reduced or eliminated altogether. A leaner budget can help you stay focused on the essentials while managing increased payroll expenses.
If you’re not doing so already, introducing a remote or hybrid working model can reduce overheads such as office space and utilities. Flexible working has also been shown to increase both employee satisfaction and productivity, so you’re also able to reduce turnover and the costs associated with retention and recruitment.
While many businesses are initially hesitant to outsource due to the cost of paying a third party, it’s often a much more cost-effective option in the long run. Outsourcing eliminates the headache of hiring someone in-house, along with the overhead costs that come with employment, such as holiday pay, sick pay, training etc.
Plus, alongside an employee’s salary, there are other significant overheads to account for – like lighting, heating, software, hardware, to name just a few. Compare this to the monthly cost of outsourcing, and the difference can be astounding.
Not only this, but an outsourcing partner will also have the power of an entire team behind them. Meaning that your business gains vital continuity that would otherwise be lost in-house during periods of holidays, sickness or maternity leave.
Outsourcing your calls to Moneypenny isn’t an all-or-nothing approach – our solutions are completely tailored to meet your specific needs. So, as employment costs rise, turning a permanent fixture like telephone answering into a variable cost makes a lot of financial sense. Whether you require overflow support for busy periods or a fully outsourced 24/7 switchboard solution, Moneypenny adapts to your business.
This flexibility means you can scale your support up or down as needed, so you’re only paying for what you use and need. So, during busy times you can guarantee exceptional service without overstretching your internal team or incurring unnecessary overheads during quieter periods.
Also, with financial changes impacting businesses across the board, it’s more important than ever for companies to deploy their resources carefully and where they add the most value to the business. Outsourcing your call handling to Moneypenny frees up valuable management time, allowing your internal teams to focus on more productive, business-critical duties.
With rising costs and increased pressures on businesses, there has never been a better time to explore outsourcing. Contact Moneypenny today on 0333 202 1005 to see how our support will transform your business.
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