Chancellor Rachel Reeves has announced the National Insurance rate employers are charged on their employees’ salaries is to go up amid concerns on the impact for workers. The announcement in the Budget means rates are increasing to 15% next April from 13.8% – a 1.2% rise.
In addition, the threshold for paying them is to drop from £9,100 per year to £5,000. The move means employers will pay more – but Labour says the measure means ‘working people’ will not be affected.
Yet there are fears the move could still hit employees. Rena Magdani, National Head of Employment, Pensions and Immigration at national law firm Freeths, warned: “The announcement that there will be a 1.2% increase to Employer National Insurance Contributions will significantly increase employer overheads.
“As with any increase to employer overheads, there is a risk that it means that employers cut back on recruitment or employee pay and benefits. The areas that might be impacted more than others are those with a higher proportion of their costs linked to staff pay, such as hospitality, retail and professional services.”
The changes will only be put in place next April, giving businesses time to prepare and potentially mitigate these types of side effects. However, the expert warned: “This might mean that pay reviews in 2025 are less generous than they would otherwise have been. It could also be that that businesses are less likely to recruit new employees.”
She said the budget changes combined with other provisions confirmed in the Budget and expected next autumn could lead businesses to even greater shifts. She warned: “One thing that employers might do over the next year or so is to devote energies to invest more in automation and find AI solutions to reduce their requirement for employees in certain areas, to cut costs in the long term.”