National Insurance Contributions: what do new employers NICs changes and rates increase mean for UK workers?

• From April 6, employer National Insurance Contributions rose from 13.8% to 15%, affecting more workers
• The threshold for NICs has been lowered to £5,000, meaning more employees will be subject to payments
• The government aims to raise £25 billion per year by 2029 to fund public services
• But critics warn that businesses may reduce hours, cut jobs, or increase prices to offset costs

From Sunday (April 6), an increase in employer National Insurance Contributions (NICs) has come into effect, rising by 1.2 percentage points from 13.8% to 15%.

The threshold at which employers start paying NICs has also been reduced, dropping from £9,100 to £5,000, meaning more employees are subject to employer NICs

Employer NICs are contributions paid by businesses and employers to the Government based on the earnings of their employees.

Making the announcement as part of her 2024 Autumn Budget, Chancellor Rachel Reeves defended the increase, arguing that it will raise £25 billion per year by 2029, which will be used to fund key public services.

She said the Government did not "take this decision lightly" as businesses continue to face cost pressures (including a recent 6.7% rise in the minimum wage), but the changes are necessary to ensure the long-term financial health of the country

The move will have significant effects across the UK. But what does it mean for employees, and the businesses that employ them? Here is everything you need to know about it.

What does it mean for employees?

On the face of it, an increase in employer NICs is a positive, and in an ideal world, the Government’s plan to generate more revenue to fund essential public services would work as intended.

But we live in a capitalist society, one that operates on the principle of profit maximization. Businesses will do whatever they can to minimise costs and maintain profitability.

For businesses, the NIC changes translate into higher costs, which could lead to financial strain, especially for smaller businesses, already under pressure due to the cost-of-living crisis and operating on tight margins.

Many business owners, particularly in sectors like hospitality and retail, are concerned that further rising costs will force them to make ‘difficult decisions’ - reducing employee hours, or cutting jobs entirely to save money.

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For employees who face reduced hours, this will mean less take-home pay. This, coupled with the fact that businesses may pass on costs to consumers by raising prices, means workers may feel the pinch when it comes to their everyday spending.

The increase in employer NICs could also lead to slower wage growth, as businesses may be less inclined to offer pay raises if their financial resources are stretched by these additional costs.

Kate Nicholls, chief executive of UKHospitality, said: “The increases to employer national insurance contributions are going to hit businesses and workers right across the UK.

“The impacts will be stark, with hours for staff reduced, trading hours shortened, prices increased and, in the worst case scenario, jobs lost.”

It’s not just smaller businesses that will have to adapt, and larger corporations with significant resources might explore restructuring strategies to avoid paying the full amount of NICs.

Some companies may look at ways to hire employees on zero-hour contracts, use freelancers, or outsource jobs to countries with lower tax rates, effectively reducing the number of employees they need to pay full NICs on.

While the NICs rise may have good intentions in terms of increasing public revenue and enhancing public services, the reality is that businesses are not likely to absorb the full costs themselves.

Will it work?

As businesses adapt to these changes, it remains to be seen whether the government's projections of increased public revenue will come to fruition, or whether negative impacts on employment will outweigh the benefits.

While the NICs rise may have good intentions in terms of increasing public revenue and enhancing public services, the reality is that businesses are not likely to absorb the full cost of this rise themselves.

Shadow Business and Trade Secretary Andrew Griffith pointed to the tariffs introduced by US President Donald Trump, saying: “British firms are already on their knees — now Labour delivers a one-two punch that could flatten them.

“They don’t understand that it’s business, not big government, that drives growth. If they don’t reverse course fast, working people will pay the price.”

The Liberal Democrats have also expressed concern, calling the NICs increase a "hammer blow" to businesses. Daisy Cooper, the party’s Treasury spokesperson, said: “In the current climate, it threatens to turn our high streets into ghost towns.

“The Government needs to rethink, scrap the jobs tax and raise this money fairly by asking the big banks and digital giants to pay their fair share.”

While this opposition to the NICs rise is framed as a defence of workers’ interests, the actual focus is often more about ensuring that businesses are not burdened with additional costs.

It’s a perspective that may overlook the potential benefits that higher NICs could have for workers, such as increased funding for public services or better social safety nets.

Last week, Sir Keir Starmer acknowledged that the cost-of-living crisis continues, with people feeling the strain of rising household bills, but pointed to the recent increase in the minimum wage as a positive development.

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