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Impact of National Insurance changes on employers

Blog
The HR Procurement Services Team
23 Jan 2025

Starting on the 1st of April 2025, two key changes will be implemented following the Autumn Budget announcement made in October 2024. The two key changes are:

The National Insurance rate will increase from 13.8% to 15%.
The threshold on earnings at which the National Insurance rate applies will drop from £9,100 to £5,000.

The impact can be deceiving as the NI rate increase is minimal, but when taking into account that the rate will be applied to a much larger portion of earnings, the impact is far greater, as demonstrated in the example below. The working example shows the overall increase in the National Insurance contributions employers will have to pay for each of their workers. This example looks specifically at the impact on contingent labour.

From the 1st of April 2025 onwards, the minimum Living Wage hourly rate is £12.21 (increasing from £11.44 previously). Let’s take this figure to explore the impact. At the 2024 NI rate and threshold, the NI contribution per hour on top of the minimum rate of £12.21 is £1.20.

From April 2025, employers will contribute £1.64 per hour in National Insurance. This is a 43 pence increase per hour per worker at minimum wage. Considering a standard 37.5-hour week, that is an additional cost of £16.13 per week for the employer, and £838.50 per year per worker at minimum wage. If your organisation has 100 temporary workers working a 37.5-hour week at minimum hourly rates, this would be an additional £83,850 per year at the expense of the organisation on top of the salaries paid.

2024: £12.21 (hourly rate) x 37.5 hours x 52 weeks = £23,809.5 + £2,340 in NI contributions = £26,149.50*
2025: £12.21 (hourly rate) x 37.5 hours x 52 weeks = £23,809.5 + £3,198 in NI contributions = £27,007.50*

*These figures are exclusive of Agency Mark-ups/Fees and Working Time Regulations which employers will pay in addition for their temporary workers.
These changes are expected to raise an annual amount of £25 billion to support public services and economic stability.

YPO have asked prominent recruitment agencies in the country to share how they will support public sector organisations navigate this change and how to mitigate the risks of the significant increase in costs going forwards within the delivery of their MSP solutions.

Tracey Dawes, Solutions Director at Reed Talent Solutions

“The impact of the changes to NI contributions from April will be two-fold – increase in the headline percentage and a decrease in the free pay threshold. As such, Reed is working to update our technology system to enable a smooth transition from 6th April. It is important to encourage all timesheets to be submitted and approved in a timely fashion and we are proactively discussing with our clients the impacts of any delays in pay awards and the subsequent NI impact. It is important that YPO customers understand the individual financial impact these changes are going to have, so would encourage transparency and open communication with suppliers.”

Hoa Ngo, Managing Director at Workforce Solutions Impellam UK & Europe at Comensura

“The increase in National Insurance payments and the minimum wage presents both challenges and opportunities for workforce management in the public sector. On the one hand, they mean significantly higher employment costs at a time of additional high costs such as energy, prompting a need for careful budget adjustments. On the other hand, the rise in minimum wage enhances workers' disposable income, which can lead to increased morale, productivity, and retention rates.

The key will be for local authorities and government agencies to optimise operational efficiency to offset these increased costs. We have been working with organisations looking to increase the use of automation and AI to take away repetitive tasks and manual work. This doesn’t need to mean loss of jobs in the way that is commonly perceived. It means that those doing this work can be allocated to increase productivity and improve constituent interaction. This will in turn, could lead to successes such as reduced waiting times, improved health in the region, and more satisfied residents.”

If you would like any more information or support, please contact the HR Solutions team as [email protected].

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The HR Procurement Services Team

YPO