As we enter into a new year, it’s important for small businesses and SMEs in the UK to be aware of the changes that are coming their way. One such change that is set to impact businesses is the rise in Employers’ National Insurance contributions (NIC) in April 2025. This increase will have a direct impact on employee costs, cashflow, and margins for businesses across the country. In this article, Philip Welsh, product marketing manager at Sage, shares his insights on how businesses can effectively manage this rise in employers’ National Insurance.

Firstly, it’s important to understand why this rise in Employers’ National Insurance is happening. The UK government has announced that from April 2025, the threshold for Employers’ National Insurance contributions will increase from £8,632 to £9,500. This means that businesses will have to pay an additional 0.5% on their employees’ earnings above the new threshold. While this may seem like a small increase, it can add up to a significant amount for businesses, especially for those with a large workforce.

So, how can businesses manage this rise in Employers’ National Insurance? The key is to plan ahead and make necessary adjustments to your budget and cashflow. Here are some tips to help you navigate through this change:

1. Review your current payroll system
The first step is to review your current payroll system and make sure it is up-to-date and compliant with the new changes. This includes updating the payroll software, tax codes, and employee records. It’s also a good idea to seek advice from a payroll specialist to ensure that your business is fully prepared for the changes.

2. Re-evaluate your employee costs
With the increase in Employers’ National Insurance, businesses will have to bear the additional costs of their employees. This means that you may have to re-evaluate your employee costs and make necessary adjustments to your budget. This could include freezing or reducing salaries, cutting back on bonuses or benefits, or even considering a hiring freeze. While these decisions may not be easy, they are necessary to manage the impact of the rise in Employers’ National Insurance.

3. Explore alternative ways to manage cashflow
For businesses that are already struggling with cashflow, the rise in Employers’ National Insurance may add to their financial burden. In such cases, it’s important to explore alternative ways to manage cashflow. This could include negotiating payment terms with suppliers, offering discounts for early payments, or even seeking financial assistance from banks or other lenders.

4. Consider outsourcing
Outsourcing certain tasks can help businesses save on employee costs and manage the impact of the rise in Employers’ National Insurance. For instance, you can outsource your payroll and HR functions to a third-party provider, which can help you save time and money in the long run. It also allows you to focus on other important aspects of your business.

5. Communicate with your employees
It’s important to communicate with your employees and keep them informed about the changes that are happening. This will help them understand the reasons behind any changes in their salaries or benefits. It’s also a good idea to have an open-door policy and listen to any concerns or suggestions that your employees may have.

In conclusion, while the rise in Employers’ National Insurance may seem daunting, it’s important for businesses to stay informed and be prepared for the changes. By reviewing your payroll system, re-evaluating employee costs, exploring alternative ways to manage cashflow, considering outsourcing, and communicating with your employees, you can effectively manage the impact of this change on your business. As we move towards a new era, it’s crucial for businesses to adapt and evolve to stay ahead in the game.