Read more articles in: Amanda Hyam, Blog, News

What does a rise in employer National Insurance mean for employees?

In a landmark Autumn Budget, the Chancellor announced a rise in National Insurance (NI) contributions for employers to 15 per cent, as well as lowering the threshold at which they are due – from £9,100 to £5,000 per year.

This comes alongside an increase in the National Living Wage (NLW) in April 2025 to £12.21.

This represents a significant cost to employers, many of which may not have the financial resources to cover these expenses.

As a result, businesses may have to find ways of reducing their staff costs, which could have a significant impact on employees.

The effect on wages

Despite the rise in the NLW in 2025, wages could be hit by an overall freeze of higher wages as employers struggle to keep up with costs.

For example, consider a manager and their administrator. The administrator is paid at the NLW rate while the manager is paid £18 per hour, both for full-time work.

In April 2025, the administrator will receive a 6.7 per cent pay rise by law, with the employer also needing to pay more NI on both employees’ wages.

Due to this rising cost of meeting their legal obligations, the employer may not be able to offer the same 6.7 per cent rise to the manager – meaning those on higher wages may see fewer or smaller increases in their pay.

The main consideration for employers will be to ensure staff are being paid according to the relevant minimum – particularly for salaried employees, as the NLW has undergone two significant rises since April 2024.

Employees should be aware of their minimum entitlement and report any discrepancies to their employer.

The rise of settlement agreements

It is possible that we will see a surge in the popularity of settlement agreements among employers seeking to reduce their long-term staffing costs.

An unfortunate side effect of rising employment costs may be that some businesses need to reduce their staff numbers and choose to terminate the employment contracts of some employees.

Settlement agreements are used to end employment and head off potential disputes through mutual agreement laid out in a binding contract.

They can be used here to:

Compensate the employee for loss of income
Protect the business and manage the risk of a dispute
Support the reduction of long-terms staff costs.

Although this may increase initial costs, it can help to streamline employee numbers and costs in the long run.

Please contact our team for further advice on employment costs and the rights of employees.

Amanda Hyam

Head of Dispute Resolution and Employment

I have specialised in Dispute Resolution, Civil Litigation and Employment law for more than 15 years. I understand how daunting the prospect of litigation can be and because of this I am always available to discuss concerns.