As the higher Employer National Insurance Contributions come into effect this month, new analysis highlights those businesses that could be better off.
The changes to employer National Insurance Contributions (NICs) that came into force on 6 April will hit medium-sized businesses hard, according to Employment Hero, an HR, payroll and employee engagement platform.
Employment Hero has analysed 4,600 SMEs in order to understand which firms are likely to be worse off. Its findings show that:
- Most small businesses with more than eight to ten employees will face additional costs;
- Companies employing 20 or more staff face extra costs of £8,472 annually;
- Those firms employing 31-50 employees will have to pay an extra £18,000 per year in NI.
However, businesses with fewer than eight employees are likely to be better off, thanks to the Employment Allowance extension to £10,500. These firms could see savings of around £3,000 a year, according to the findings.
According to a 2024 study of the UK's micro-business landscape by PolicyBee, there are 1.16 million firms in the UK that employ up to ten staff.
"While the smallest businesses may benefit from the Employment Allowance extension, the cost escalates rapidly once you pass about eight to ten employees," said Kevin Fitzgerald, UK me of Employment Hero. "A medium-sized business with 20 or more staff is looking at over £8,400 in additional annual costs - money that could otherwise be invested in growth, innovation, or higher wages. Larger firms are looking at close to £18,000 on average."
Midlands firms face higher costs
Looking at regional differences, the study finds that although small London businesses face some of the steepest costs, it is Midlands firms with 31-50 staff that will be hit the hardest. "Regional differences are stark," adds Fitzgerald. "Smaller businesses in London face costs sooner due to higher average salaries. You shouldn't be punished for wanting to pay your staff enough to survive in an incredibly expensive city."
Employment Hero's latest SmartMatch Employment Report, which uses real-time data from 105,000 employees across UK SMEs, finds that employment has contracted by an average of 0.3% every month since the NIC hike was announced in October 2024, including a 0.4% decline in February.
"These NIC changes create a significant burden for growing businesses at exactly the wrong time. Our data clearly shows that employers have been preparing for these increased costs since the announcement in October by slowing hiring, particularly among younger workers who have seen employment fall by 1.8% in February alone." Kevin Fitzgerald, Employment Hero.
Businesses can get more information about the Employer NIC rise and the extended Employment Allowance on the government website.
Written by Rachel Miller.