Plan for rising employment costs: A business essential
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Posted: Fri 28th Feb 2025
6 min read
With the upcoming increases in National Insurance (NI) contributions, business owners need to be proactive with their financial planning.
Rising employment costs can put significant pressure on cash flow and profitability, making it essential to budget accurately and make smart staffing decisions. Without a solid plan, businesses may struggle to maintain competitive salaries, retain talent or even cover day-to-day expenses. However, by getting ahead of these changes, you can stay in control, adapt with confidence and continue growing your business.
In this blog, we’ll break down why planning for these cost increases is so important and how you can navigate them effectively.
Accurate budgeting for increased NI costs
National Insurance is a major outgoing for employers and the upcoming changes will add to this burden:
Rate increase: From April 2025, the employer's National Insurance rate will rise from 13.8% to 15%
Threshold reduction: The level at which employers start paying NI (the secondary threshold) will decrease from £9,100 to £5,000 per year
These changes mean that businesses will face higher NI costs, even for lower-paid employees.
To prepare:
Review payroll expenses: Understand how the increased rates and lower thresholds will affect your total payroll costs
Adjust financial forecasts: Incorporate the updated NI contributions into your budgeting to stay ahead of future expenses
Use payroll software or seek expert help: Accurate payroll calculations are vital — working with an accountant or using the right software can help ensure compliance and efficiency
Making informed staffing and salary decisions
As employment costs rise, making strategic staffing and salary decisions becomes more important than ever. Here’s how you can manage these challenges:
Assess hiring plans: Consider whether full-time, part-time or contract roles are the best fit for your business’s financial situation
Review salary structures: Ensure that wage increases, bonuses and other incentives align with your budget and long-term sustainability
Keep employees in the loop: Open communication about any planned changes will help maintain trust and morale among your team
Evaluating the financial benefits of Employment Allowance
The Employment Allowance can offer some relief by reducing employer National Insurance liability. Changes coming in April 2025 include:
Increased allowance: The allowance will rise from £5,000 to £10,500 annually
Eligibility expansion: The previous £100,000 employer NI liability cap will be removed, allowing more businesses to qualify
To make the most of this benefit:
Check your eligibility: Ensure your business meets the new criteria
Factor it into your planning: Take advantage of the increased allowance when forecasting payroll expenses
Get expert advice: Speaking to an accountant can help ensure you're maximising available reliefs while staying compliant
Strategising to maintain profitability amidst rising employment expenses
Rising costs don’t have to mean reduced profitability — businesses can take proactive steps to stay financially strong:
Improve operational efficiency: Identify areas where costs can be cut without sacrificing quality
Adjust pricing if needed: Reviewing pricing strategies can help balance increased costs without losing competitiveness
Invest in automation and tech: Reducing manual workload can improve productivity and cut long-term expenses
Keep a close eye on cash flow: Regular financial reviews will help you spot any potential issues early and stay in control
Why planning matters
Ignoring these changes could result in financial strain, reduced profit margins and tough decisions down the line. But with the right planning — whether it’s updating budgets, reviewing hiring strategies or taking advantage of available allowances — you can stay ahead of the curve and continue growing with confidence.
Why you should plan before April 2025
With the National Insurance increases and Employment Allowance changes taking effect in April 2025, it’s crucial to start preparing now. Planning early means you can gradually adjust budgets and payroll strategies instead of scrambling to adapt at the last minute. This allows for a smoother transition, ensuring that your business remains financially stable.
By acting now, you can explore cost-saving measures, reassess your staffing plans and take full advantage of financial relief options.
Leaving it too late could mean facing cash flow issues or being forced into rushed decisions that negatively impact both your business and employees. A proactive approach gives you control over your finances, reduces stress and sets you up for success.
If you need guidance on budgeting, payroll, or financial planning, get in touch today to ensure your business stays on track amidst these upcoming changes.
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