National Insurance Hike Kicks In. What It Means for You!

Starting this week, employers across the UK are hit with a hike in National Insurance contributions (NICs), which risks squeezing businesses via higher costs, in turn putting jobs at risk.

From 6 April, the Class 1 employer NIC rate jumped from 13.8% to 15%, adding hundreds, or even thousands, of pounds to the cost of hiring a single worker. At the same time, the threshold at which employers start paying NICs has been slashed from £9,100 to just £5,000, dragging hundreds of thousands of part-time workers into the system for the first time.

For a business employing someone on an average salary of £30,000, the change means an extra £900 per year in tax. For larger firms with thousands of staff, the numbers quickly spiral into the millions.

Who Gets Hit the Hardest?

The retail and hospitality sectors, which rely heavily on part-time workers, could be in for the biggest blow. The British Retail Consortium (BRC) warns up to 160,000 part-time jobs could be at risk over the next three years as businesses look to cut costs.

Last October’s Autumn Budget forced retailer wage bills up by over £5 billion. Now, with the NICs hike and the higher national living wage, hiring has become much more expensive. Half of retail finance directors who participated in a recent survey were already planning hiring freezes or job cuts in stores and head offices.

Hospitality businesses are also feeling the pinch. Changes are expected to cost the sector £1 billion a year, with many pubs, restaurants and hotels now reconsidering staffing levels and opening hours.

Bosses of the hospitality sector are saying that the costs hitting hospitality this month are eye-watering, adding that investment plans are being put on hold and job creation shelved. As these costs bite, they say, some venues may have to cut trading hours or, in the worst cases, cut jobs altogether.

Why Is This Happening?

The government says the raise is necessary to fund NHS backlogs and prop up public services. Chancellor Rachel Reeves announced the move last October, framing it as a way to raise £23.7 billion a year without touching Corporation Tax.

NICs are seen as a reliable tax stream, and harder to dodge than other levies, which makes them an attractive option for a cash-strapped Treasury. But for businesses already punished with high inflation and sluggish growth, it’s another burden to shoulder.

Is There Any Relief for Small Businesses?

There’s a small silver lining for small businesses. The Employment Allowance—which lets smaller firms offset some of their NICs—has been doubled from £5,000 to £10,500, and the £100,000 eligibility cap has been scrapped. This means more of them can benefit.

But even with that cushion HMRC estimates 940,000 employers will still end up paying more while only 250,000 small businesses will see their costs slide.

How Can Businesses Soften the Hit?

Given few ways to avoid the hike, employers are being urged to make the most of salary sacrifice schemes, where staff exchange part of their salary for benefits like pension contributions.

Experts say for every £100,000 sacrificed into a pension, employers save £15,000 in NICs, insisting such savings shouldn’t be underestimated. At a time when every penny counts, salary sacrifice can make a meaningful difference for businesses.

But there’s another headache for small employers: extra paperwork. Businesses that previously didn’t have to file Real Time Information (RTI) payroll returns, because their workers earned below the lower earnings limit, will now have to do so if any employee makes more than £5,000 a year.

HMRC has spent around £900,000 updating its systems to handle the change, but for small firms stretched thin, it’s yet another admin burden.

Conclusion: What Happens Next?

The new threshold of £5,000 will stay in place until April 2028, after which it’ll rise with inflation. And thanks to that, businesses, especially so for those in retail and hospitality, are being forced to make tough choices: cut hours, freeze hiring or show staff the door. The squeeze is well and truly on.