From 6 April 2025, UK employers will face a significant shift in employment-related costs. The government’s new Employer National Insurance (NIC) rules, combined with an increase in the National Minimum Wage, will result in a higher cost of employing staff, especially for businesses with lower-paid or part-time workers.
At City Heights Accounting Services, we’re helping our clients stay proactive by reviewing payroll budgets, reassessing workforce structures, and identifying ways to reduce the overall impact on business performance.
What’s Changing in 2025/26?
Two key changes to Employer NICs will apply from the start of the 2025/26 tax year:
- Employer NIC Rate Increase:
The standard Employer NIC rate will rise from 13.8% to 15%.
- Lower Secondary Threshold for NICs:
Employers will begin paying NICs on employee earnings above £5,000 per year, down from the current £9,100.
This means employers will pay a higher rate on a larger portion of each employee’s salary, significantly increasing overall payroll costs.
You can find full details here: https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2025-to-2026
What Does This Mean for Employers?
For many businesses, the combined effect of a higher NIC rate and a lower threshold could mean:
- Higher overall employment costs
- Reduced margins on labour-intensive services
- Pressure on hiring budgets and wage structures
- Need for more detailed payroll forecasting and cash flow planning
The impact will be felt across all industries, but especially those employing part-time workers or paying near-minimum wage, where margins are tight and passing on increased costs to clients may be difficult.
Real Impact: What the Numbers Show
To illustrate the financial impact, let’s consider a common scenario: a business employing someone on minimum wage, working 20 hours per week.
In the 2025/26 tax year, the minimum wage will rise from £11.44 to £12.21 per hour. This alone increases gross monthly pay by over £66, or around £800 more per year for just one employee.
However, the more substantial rise comes from Employer NICs. Due to the combination of the increased NIC rate (15%) and the lower threshold (£5,000) at which contributions start, the monthly Employer NIC bill for this same employee jumps from just over £32 to more than £96, nearly tripling. Over the course of a year, that’s an additional £768 in NICs alone.
Add in a modest increase in pension contributions, and the total rise in employer cost reaches approximately £1,595 annually per employee working part-time hours on minimum wage.
Multiply that across a team, and the financial impact becomes clear, especially for businesses in hospitality, retail, care, or other labour-intensive sectors.
How Can I Prepare for the Employer National Insurance Increase?
Adapting to these changes doesn’t have to be overwhelming. With a strategic approach, employers can minimise disruption while maintaining workforce stability.
Here are practical steps to take now:
- Review Payroll Budgets – Adjust your payroll forecasts to reflect both the increased NIC rate and the lower threshold. Factor in the new National Minimum Wage rate if it applies to your staff, and assess the cumulative impact across different teams.
- Optimise Workforce Planning – Look at your staffing model. Are there opportunities to restructure roles or increase productivity per hour worked? Review your use of part-time and flexible contracts to ensure they remain cost-effective under the new rules.
- Consider Salary Sacrifice Schemes – These arrangements allow employees to exchange part of their salary for non-cash benefits, like pensions or cycle-to-work schemes, helping reduce NIC liabilities for both employers and staff.
- Talk to an Accountant Early – A proactive review can help you identify cost-saving opportunities and ensure full compliance. We’re here to guide you through those conversations.
How City Heights Accounting Services Can Help
At City Heights Accounting Services, we’re committed to easing the pressure these changes bring. Whether it’s forecasting how the new NIC rules will impact your payroll, helping you make the most of the increased employment allowance, or offering smart advice on staffing and budgeting, we’re here to provide clear, practical support. Our goal is to help you stay compliant, protect your margins, and make confident decisions for your business.
Get Support That Works for You
The Employer NIC changes are not just a minor adjustment; they represent a material shift in the cost of doing business in the UK. With tailored planning and expert advice from City Heights Accounting Services, you can stay ahead of rising costs and continue to grow sustainably.
Need support? Whether it’s a cost review or workforce strategy discussion, we’re here to help you protect your margins and plan with confidence. Get in touch today.