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How rising National Insurance costs are squeezing business finances

In recent years, UK businesses have faced a perfect storm of financial pressures—from inflation and supply chain disruptions to rising energy costs. Now, many are grappling with another hit to the bottom line: increased National Insurance (NI) contributions.

National Insurance, the tax used to fund state benefits including the NHS, state pension, and unemployment support, is largely split between employees and employers. For businesses, any rise in employer NI contributions directly increases the cost of employing staff and has become a growing concern for finance directors and small business owners alike.

The impact on payroll costs

Employer NI contributions recently rose from 13.8% to 15% on salaries over £5,000. The increase, in addition to wage inflation has significantly increased the NI burden for employers and has added many pressures such as:

• The rise in minimum and living wages increases the baseline salary businesses must pay.
• As salaries go up, so do NI contributions—meaning that employers pay more.
• Temporary increases to NI rates, such as the Health and Social Care Levy introduced in 2022 (and then reversed in 2023), created budgeting uncertainty and administrative burdens.

In sum, higher wages and shifting thresholds are driving up overall NI bills—especially for labour-intensive industries like retail, hospitality, and manufacturing.

Effects on growth plans

The rising cost of employment is pushing many businesses to reconsider their growth plans. With increased NI costs eating into margins, companies are taking actions including:

• Freezing new hires or postponing recruitment.
• Reducing headcount or hours for part-time and zero-hours employees.
• Turning to automation to drive cost efficient processes.
• Scaling back on benefits to offset payroll-related expenses.

For small businesses already operating on thin margins, these decisions are not taken lightly. Yet for many, it’s a matter of survival.

Cash flow and financial planning challenges

For those managing budgets, procurement or long-term business strategy, the impact of rising costs can’t be ignored and can complicate cash flow planning exponentially. Unlike discretionary expenses, NI contributions are statutory and non-negotiable. Businesses must manage and absorb them or pass the costs on to customers—which isn’t always desirable in competitive markets. How can finance leaders manage increased costs?

• Know the numbers in real-time – delayed financial visibility is very risky and not reliable for decision making.
• Manage procurement – small overspends and uncontrolled spend adds up quickly and can leave the business vulnerable.
• Plan and risk assess – plan for every eventuality and have a robust plan in place for all scenarios
• Forecast – build NI increase into future forecasted figures
• Review staffing models – consider part-time, freelance or contract roles for more flexibility
• Utilise employment allowances – small businesses can claim up to £5,000 off their employer NI bill through the Employment Allowance
• Invest in technology – turning to automation software to automate time-intensive, manual tasks such as accounts payable and purchase order processing can save significant costs and drive efficiency
• Invest in robust reporting tools – equipping your business with robust business intelligence tools that give real-time accurate insight to make data-driven decisions is fundamental.

Final Thoughts

The rise in National Insurance is likely to have a significant impact on business finances and the way in which businesses operate. It may lead to recruitment freezes, reducing headcounts and hinder growth plans. There are steps business owners and finance leaders can take to mitigate the impact such as turning to technology and automation in a bid to drive efficiency and reduce manual workload, and investing in robust reporting tools to make smart, data-driven decisions. Of course, knowing your figures inside out and putting plans in place for different scenarios is a given too.

Rising NI contributions are a strategic concern that’s reshaping how UK businesses plan, hire, and grow. If you have concerns about your business and want to discuss how our ERP solution Opera 3 SE can help you keep on top of your finances and reporting then please contact us today.

Posted On: May 29, 2025