Employer national insurance contributions (NICs) rose from 13.8% to 15% on Sunday – a measure Rachel Reeves announced in the budget last October.
Reeves also lowered the threshold at which employers pay NIC from £9,100 a year to £5,000 a year, meaning they start paying at an earlier point on staff salaries.
How many businesses will be impacted?
The government’s own policy paper admits 940,000 employers will see their contributions increase – while 250,000 will, the paper says, see a reduction, with 820,000 experiencing no change.
This weekend, Sky News spoke to businesses about the impact.
So what can businesses do to lessen the impact?
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Claim the higher employment allowance
The employment allowance is rising, which partly explains why some businesses will see reduced costs.
This allowance previously allowed employers to reduce their NI bill by £5,000 – but this is now rising to £10,500.
Amy Hancock, owner of accountancy practice Hancock and Hastings, said: “If your NIC bill is under £100k, make sure you’re claiming it. It’s simple to apply via HMRC’s payroll system, and it’s one of the easiest ways to offset the hike. If you’ve not claimed before, double-check your eligibility and get it sorted before your next payroll run.”
Use, or expand, salary sacrifice schemes
This allows employees to give up part of their salary for benefits like pensions, electric cars or cycle-to-work schemes.
Sacrificed salary is exempt from all forms of NI – meaning both employers and employees pay less tax.
Offer tax-free perks instead of pay rises
With national insurance contribution rates climbing, pay rises will be costing businesses even more.
Hancock, who has teamed up with QuickBooks for a PR campaign aimed at helping small and businesses cope with the changes, said: “Look at the perks available through HMRC-approved schemes. Consider topping up pensions, introducing a share scheme, or offering health benefits.”
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Review your setup
You could be paying more national insurance than you need to if you’re carrying excess staff costs.
“Look at the structure of your team,” Hancock said. “Could some roles be done on a freelance or part-time basis? Could you outsource certain tasks? This isn’t about cutting jobs, it’s about making sure your payroll setup is as efficient and flexible as possible to avoid unnecessary costs.”
Likewise, in some sectors, investing in technology and automation can cut manual tasks and help you keep a lean payroll.
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So basically, cut your workforce? Not necessarily…
The latest Intuit QuickBooks small business index report shows 54% of UK entrepreneurs plan to hire in 2025, with small businesses adding 6,000 new jobs in February.
Clearly, this is not uniform – but sectors where recruitment plans remain steady include HR, financial services, IT and Telecoms.
“SMBs are doubling down on hiring while leveraging tech, accountants, and AI to absorb costs,” the index found. “Rather than a hiring freeze, we’re seeing a ‘hire now before costs climb higher’ strategy.”
