The increase in employer National Insurance Contributions (NICs) is approaching—how will your business adjust?
With the rate set to rise to 15% in April 2025 along with a lower secondary threshold, companies are facing tough choices. Options like hiring freezes, smaller pay raises, or scaled-back benefits might seem unavoidable, but HR leaders are stepping up to rethink workforce costs without compromising employee retention or engagement.
It’s no surprise that 63% of businesses rank tax concerns—including NICs—as a top priority, according to the British Chambers of Commerce. The good news is that innovative employers are finding creative solutions. From smarter workforce strategies to inventive compensation models, they’re turning a potential setback into an opportunity to keep employees engaged and their businesses thriving.
Key strategies to reduce NIC costs while retaining top talent
- Save big with salary sacrifice schemes
Salary sacrifice offers an immediate and effective method to lower NIC liabilities while delivering attractive benefits.
Employees can exchange part of their salary for tax-efficient perks such as pension contributions, cycle-to-work schemes, electric vehicle leasing, or extra annual leave.
As NICs are calculated on post-sacrifice earnings, both employers and employees enjoy tax savings—a true win-win.
However, transparency is key. Communicate the value of salary sacrifice clearly to ensure employees see it as a benefit—not a pay cut!
- Prioritise perks over pay
Instead of raising salaries—which increases NIC liabilities—focus on high-value, non-monetary benefits that boost employee satisfaction.
Today’s workforce values flexibility, wellness, and career growth as much as financial rewards.
Consider offering extra annual leave, improved health and wellness programmes, flexible hours, remote work options, and substantial professional development budgets.
Such strategic perks can enhance retention and engagement without substantially inflating payroll costs.
- Maximise government incentives and tax reliefs
Leverage available tax relief schemes to counter rising NIC costs. Work closely with your finance team to explore options like:
- Employment allowance:Small businesses can claim up to £10,500 against NICs from April 2025.
- R&D tax credits:Businesses investing in innovation can reduce taxable profits.
- Apprenticeships:Hiring apprentices can unlock government funding while reducing payroll costs
Proactive planning helps ensure no financial opportunities are missed.
- Restructure your workforce model
Rethinking your workforce structure can yield significant payroll savings while keeping talent. Consider outsourcing non-core functions (e.g. IT, administration, payroll), hiring freelancers or contractors for project-based work, and introducing part-time or job-sharing roles.
A word of caution: Ensure any changes align with your long-term talent acquisition and retention goals and involve employees in discussions to avoid negative perceptions that could impact morale.
- Upskill instead of hiring
Bringing in new hires increases payroll taxes, benefits costs, and NIC liabilities. Instead, maximise your existing workforce by cross-training employees to fill skill gaps, investing in leadership and management training, and leveraging apprenticeship programmes with government incentives.
A lean, highly skilled team helps HR leaders control costs while strengthening overall business resilience.
- Leverage flexible and hybrid work
While debates over remote working continue—with some organisations calling employees back to the office—flexible working remains a cost-saving asset. It reduces office space expenses (rent, utilities, maintenance), lowers travel allowances and commuting benefits, and improves retention hence reducing hiring and onboarding expenses.
Companies embracing remote and hybrid models can offset rising payroll taxes while boosting employee satisfaction.
- Automate to reduce administrative costs
Automation can be a game-changer for reducing NIC-related expenses. By automating repetitive administrative tasks such as payroll processing, invoice generation, and data entry, businesses can streamline operations and lessen their reliance on large support teams.
Although automation requires an upfront investment, the long-term savings in labour costs, alongside increased accuracy and efficiency, make it a smart, forward-thinking decision.
- Cut overheads with energy efficiency
Reducing non-payroll expenses can help counterbalance NIC increases. Look into energy-efficient office upgrades (LED lighting, improved insulation, smart heating), renewable energy solutions (solar panels, green initiatives), and government subsidies for sustainable investments.
Sustainability not only cuts costs—it also aligns with employee values and enhances your employer brand.
The time to act is now
While rising NIC costs present a challenge, they also offer HR leaders a chance to rethink workforce strategies. By focusing on cost efficiencies, employee satisfaction, and proactive planning, you can navigate these changes without jeopardising talent acquisition or retention—and future-proof your business.
Top tips:
- Review your payroll strategy and explore cost-saving options.
- Balance cost-cutting with maintaining employee satisfaction and retention.
- Communicate transparently with your team to uphold morale.
To find out more:
- Discover how FlexGenius can help you optimise benefits, reduce costs, and support a thriving workforce.
- Book a demoof our leading flexible employee benefits software solution
- Visit our contact page or give our team a call on 0800 652 4745.
