How to Mitigate the Employers’ NI Hike
Businesses can reduce the impact of these changes through several strategies:
1. Maximise the Employment Allowance (EA)
- The EA increases to £10,500, which will fully cover the first £10,500 of employer NI contributions.
- To qualify, businesses must have at least two employees, with at least one earning over the secondary threshold (£5,000 per year).
- Tip for single-director companies: Hiring a temporary employee for at least one week, paid £96.15 per week or more, could unlock access to EA.
2. Restructure Pay for Employees
- Consider offering tax-free benefits (such as childcare vouchers or cycle-to-work schemes) instead of salary increases to avoid extra NI.
- Offer part-time roles instead of full-time positions to spread income below the new secondary threshold.
- Employers should review bonus structures and consider alternative incentives such as pension contributions, which are NI-exempt.
3. Utilise NI Exemptions for Certain Employees
Some employees are exempt from secondary NI contributions on earnings up to £50,270 per year, including:
- Apprentices under 25
- Employees under 21
- Veterans in their first civilian job after leaving the military
- Employees in Freeports or Investment Zones (for the first 36 months of employment)
By hiring or restructuring roles to include these employee groups, businesses can reduce their NI bill.
4. Consider Outsourcing or Using Contractors
- If feasible, contracting out non-core work to freelancers or subcontractors (who manage their own tax) may be more cost-effective than hiring employees.
- Review existing employment contracts to determine if roles can be adapted to freelance agreements.
5. Plan Salary Increases Carefully
- With higher employer NI costs, businesses should carefully assess salary raises for 2025/26.
- Some employers may delay salary increases to offset the impact of the NI hike.
- Alternative incentives (such as share schemes) may be used to retain staff without increasing NI liabilities.
Case Study: Impact on a Small Business
Example: A Ltd – A Small Business with Four Employees
- Each employee earns £30,000 per year.
- 2024/25 Employer NI (before EA): £2,884.20 per employee → Total: £11,536.80 for four staff.
- EA reduces this to £6,536.80.
New Calculation for 2025/26
- 2025/26 Employer NI (before EA): £3,750 per employee → Total: £15,000 for four staff.
- EA of £10,500 reduces this to £4,500.
- Final NI bill is £2,036.80 LESS than 2024/25.
Outcome:
- A Ltd pays less NI overall due to the higher EA, despite the increased NI rate.
- However, if the business had more employees, the NI increase could outweigh the EA benefit.
Final Thoughts: How Businesses Can Prepare for the NI Increase
With employer NI rising to 15% from April 2025, businesses must act now to review payroll costs, employment structures, and available reliefs.
Key Actions to Take:
Check eligibility for the Employment Allowance to reduce NI costs.
Review pay structures to ensure tax-efficient salary and benefit packages.
Consider hiring apprentices, under-21s, or veterans to take advantage of NI exemptions.
Explore part-time or flexible staffing models to avoid high employer NI contributions.
Utilise tax-efficient benefits instead of salary increases where possible.
While the NI hike will increase staffing costs, careful tax planning can help mitigate the impact. Small businesses that fully utilise EA may even see their employer NI bill decrease. More information can be found on HMRC
For strategic payroll planning and tax efficiency advice, contact Merranti Accounting today. Our team can help you minimise employer NI costs and optimise your payroll structure ahead of the 2025/26 changes.
