How London businesses are responding to the 15% employer National Insurance rise
London businesses are feeling the pinch in 2025 as National Insurance Contributions (NICs) have risen to 15% from this April. But how are companies affected by the hike responding in the capital?
NIC increases have come into effect alongside National Minimum Wage (NMW) hikes and an amendment to the Employment Rights Bill (ERB), which proposes major changes to the employment law landscape.
This changing taxation environment surrounding businesses in London has prompted scores of decision-makers to rethink their recruitment strategies, with a recent CIPD survey suggesting that just over a third of the 2,000 firms it spoke to were planning to make redundancies to cover costs.
Among other solutions, 42% claimed that they would lift prices, while around a quarter of respondents intended to carry on without cancelling or scaling down their plans.
Not all companies will be affected by increases in National Insurance Contributions, and some businesses will even benefit from an increased employment allowance.
But many businesses are already coming to terms with significantly higher costs stemming from the rising contribution rate and lower qualifying thresholds.
For most small businesses, payroll is their biggest regular outgoing, meaning that NIC hikes can significantly impact cash flow and profitability.
To illustrate this, employer National Insurance Contributions for minimum wage employees have grown from £1,617 to £2,582, according to insights from the Centre for Policy Studies. This change alone will play a key role in making 2025 the most expensive year on record for employers of minimum wage workers.
These changes are expected to add 2% to employer payroll costs overall, making it a particularly challenging time for businesses in London that are already contending with rising supply chain costs.
However, there are a number of ways that employers are taking measures to mitigate the impact of NIC hikes, with the following approaches among the most popular ways to protect cash flow among companies in London:
Salary sacrifice schemes
The best and easiest way for London firms to lower their employer NIC is by utilising salary sacrifice benefits for workers.
Salary sacrifice schemes offer an opportunity for businesses to reduce their Employer Class 1 and 1A NIC, which occur when the employee voluntarily gives up a proportion of their salary to obtain different benefits.
NIC savings can also be made through Benefit-in-Kind taxation rates for some benefits, like using electric vehicles (EVs).
Salary sacrifice benefits can come in many different shapes and forms, and they can include:
Pension salary sacrifice: This is the easiest and most beneficial form of sacrifice. Here, NICs can be lowered as employees opt to receive higher pension contributions instead.
EV leasing: The high values associated with electric vehicle leasing can significantly offset NIC taxable wages while providing workers with a car that’s liable for more tax-friendly schemes.
Additional holiday purchase: Some employees are motivated by the prospect of taking more annual leave and are willing to sacrifice some of their salary to do so.
These schemes can be a great opportunity for employees to opt into fresh savings in a way that can make sacrificing their salary more appealing. However, you should always be completely transparent about the process and the amount of salary that would need to be sacrificed for each benefit.
Use the increased Employee Allowance
Small businesses in the capital can benefit from the government’s decision to increase the Employment Allowance from £5,000 to £10,500, as well as the removal of the £100,000 eligibility threshold, which means that all eligible employers can apply.
This means that if your business qualifies, you won’t be liable to pay the first £10,500 of employer NICs on your workers.
Revise staff benefits
If NIC increases are impacting your ability to attract talent without much room for competitive wages, you could double down on your employee benefits packages to attract more talent.
Options like flexible working, additional holidays, professional development opportunities, and wellness initiatives can be highly appealing to candidates, and Mitsubishi Capital data suggests that 27% of UK office workers are willing to take a pay cut to work from home permanently.
If you’re able to introduce hybrid working opportunities, then it could be a significant advantage if you’re struggling to attract candidates with your wage structures.
Onboard overseas talent
As the NIC further squeezes cash flows for London businesses, one highly functional solution is to use something called Employer of Record (EOR) to recruit talent from overseas.
One recent survey of almost 500 small businesses found that 54% intended to hire internationally, and with EOR, it’s possible to onboard remote employees in nations with lower wage expectations and plenty of expertise surrounding key industries.
Hiring from overseas means that your business has the potential to operate on a 24-hour basis and to enrich its company culture with fresh insights through a diverse workforce. Recruiting foreign workers can also be great for bringing new perspectives to problem-solving.
Thriving in London
London is already an exceptionally expensive city to build a business in, so the recent NIC increase to 15% is likely to severely impact companies of all sizes in the capital.
Thankfully, there are many measures that can be taken to continue building a happy and engaged workforce for less, helping to mitigate the impact of the hikes on businesses.
London employers have had to endure plenty in recent years, and there’s no reason why you should let NIC increases disrupt your scaling plan.