The Labour Government’s 2024 Autumn Budget announcement, introduced significant policy changes, including increased taxation and costs.

These measures aim to reduce the UK’s fiscal deficit, but their impact on industries, organisations, and employees is expected to be substantial.

The announced increase in employer National Insurance (NI) contributions is particularly concerning for companies and their people, as we look ahead to what’s to come in 2025 and beyond, with potential implications for recruitment, growth, and talent retention.

National Insurance Changes in April 2025

The Autumn 2024 Budget included several announcements that have potential impacts on employers and employees, such as a minimum wage increase and tax rises across various sectors.

Of these announcements, one of the most significant – in terms of its potential long-term impact on companies and industries and the way they operate – is the upcoming National Insurance changes, set to come into effect in April 2025.

The changes to the NI tax, which only directly applies to employers, not employees, will see the rate of National Insurance contributions for employers rise from 13.8% to 15%. What’s more, the threshold of the new rate is dropping – from £9,100 to £5,000 of an employee’s salary (i.e an employer will pay National Insurance on £4,100 more, per salary paid/employee).

This means that the many businesses across the UK will naturally pay more employer National Insurance than before. Additionally, many lower-income and part-time workers will now be included in the NI system – further increasing the amount of people – and tax – a company will have to account for.

Additionally, employer costs will be further increased due to a rise in the National Living Wage, to £12.21 per hour, and an increased National Minimum Wage, which will see workers aged 18 to 20 earn at least £10 per hour too.

Overall, there are plenty of potential increases in employer expenditure on the horizon; increases that will need to be factored into any plans, goals and expectations for 2025 and beyond.

Potential Impact on Recruitment and Talent Retention

The National Insurance increase could significantly affect organisations beyond their expenditure, profits, and overheads.

Economic changes impact talent recruitment and retention, and the employer NI rise is expected to alter how businesses approach hiring new talent and retaining existing workforces.

Companies may face various challenges, including:

  • Changing recruitment plans: Higher costs may reduce budgets for new hires, particularly for higher-salaried, full-time roles, altering recruitment and growth plans.
  • Pay structure and promotion reviews: Planned pay reviews and increases may become unmanageable due to additional costs from employer contributions and tax, making staff promotions less likely.
  • Limited training and development budgets: Increased employer costs could lead to reduced training and development opportunities as part of cost-cutting measures.
  • Potential layoffs: Some businesses, especially SMEs, may struggle to retain their existing workforce, leading employees to seek growth opportunities and wage increases elsewhere.
  • Financial strategy reviews: Growing employment costs will impact overall company budgets, necessitating a reassessment of financial strategies and operations.
  • Higher costs for consumers/clients: Companies may need to raise prices for their products or services to offset higher costs, potentially driving consumers/clients to seek cheaper alternatives.

How Employers Can React to the National Insurance Change

Understanding the challenges of the employer National Insurance contributions and their implications are vital to understanding how a company can react to them with the growth of their business and their workforce in mind.

Planning and implementing effective strategies for talent recruitment and retention can help to minimise the potential impact of the NI increase and enable an organisation to continue the growth and development of their workforce and business, with a focus on the objective of finding, hiring and keeping the right people, with the right skills required.

This is where the expertise and experience of SRG can help. By investing in our talent solutions, a company benefits from our ability to create strategies and plans suited to their specific goals, and find, attract, hire and retain people – from a diverse, multi-skilled pool of talent – who’ll help their business grow too.