New costs for UK employers in 2025

2025 brings significant changes to the cost of employing staff in the United Kingdom. Employers need to prepare for a series of modifications to contributions, rates and regulations that will directly affect their budgets. In this article we present the most important changes coming into force that will affect the cost of running a business in the UK.

Summary & key takeaways

From 6 April 2025 the employer NI rate rises from 13.8% to 15%.
The NI secondary threshold drops from £9,100 to £5,000 a year.
From 1 April 2025 the National Living Wage rose 6.7% to £12.21 an hour.
The Employment Allowance rises from £5,000 to £10,500 and covers more firms.
Statutory payments rise: SSP to £118.75 and SMP to £187.18 a week.

Increase in National Insurance (NI) contributions

From 6 April 2025, employers in the United Kingdom will experience one of the most significant changes to employment costs - an increase in the employer’s rate of National Insurance contributions.

Key changes to NI contributions:

An increase in the employer contribution rate from 13.8% to 15% - this means a rise of 1.2 percentage points
A reduction of the secondary threshold from £9,100 to £5,000 per year, which means employers will have to pay NI contributions on lower salaries than before
The Class 1A contribution rate (on benefits in kind) will also rise to 15%
The Class 1B contribution rate (for PAYE Settlement Agreements) also increases to 15%

These changes mean that employers will pay more for every employee, and will also be required to pay contributions for lower-paid workers who previously may not have exceeded the threshold.

Increase in the National Minimum Wage and National Living Wage

From 1 April 2025, minimum wage rates rose significantly, which will directly affect the costs of employers with lower-paid staff.

New hourly rates:

Worker categoryHourly rate (2024/25)21 and over (National Living Wage)£12.2118-20£10.00Under 18 (above school leaving age)£7.55Apprentices under 19£7.55Apprentices aged 19 and over, in the first year of their apprenticeship£7.55

It is worth noting the significant increase in the rate for workers aged 21 and over, which rose by 6.7% (from £11.44 to £12.21). The rise is even bigger for younger workers - the rate for those aged 18-20 increased by as much as 16.3%, while for those under 18 and apprentices it went up by as much as 18%.

For employers with staff on the minimum wage, this means a substantial increase in employment costs that needs to be factored into budgets.

Increase in the Employment Allowance

Not all of the changes are unfavourable for employers. From April 2025, the Employment Allowance - a special relief allowing eligible employers to reduce their annual National Insurance contribution costs - will rise significantly.

Key changes:

An increase in the allowance from £5,000 to £10,500 per year
Extended eligibility - from April 2025 it can also be claimed by employers whose Class 1 contribution liabilities exceed £100,000

This is a significant change that may partially offset the negative impact of the National Insurance rate increases, particularly for small and medium-sized businesses. Keep in mind, however, that if a company is part of a group of companies or charities, only one company in the group can claim this allowance.

Increase in statutory employee payment rates

From 6 April 2025, the rates of statutory employee payments also increase, which translates into higher costs for employers.

New weekly rates:

Type of paymentRate 2025-2026Statutory Sick Pay (SSP)£118.75 per week; paid from the first day of incapacity for workStatutory Maternity Pay (SMP)£187.18 per week (or 90% of average earnings, if lower)Statutory Paternity Pay (SPP)£187.18 per week (or 90% of average earnings, if lower)Statutory Adoption Pay (SAP)£187.18 per week (or 90% of average earnings, if lower)Statutory Shared Parental Pay (ShPP)£187.18 per week (or 90% of average earnings, if lower)Statutory Parental Bereavement Pay (SPBP)£187.18 per week (or 90% of average earnings, if lower)Statutory Neonatal Care Pay (SNCP)£187.18 per week (or 90% of average earnings, if lower)

Employers can recover part of these payments from HMRC. In the 2025-2026 tax year this will be:

92% if total Class 1 National Insurance contributions (employee’s and employer’s) exceeded £45,000 in the previous tax year
108.5% if total Class 1 National Insurance contributions for the previous tax year were £45,000 or less

Changes under the Employment Rights Bill

2025 is also expected to see the implementation of changes arising from the Employment Rights Bill, which was introduced to Parliament on 10 October 2024. The Bill will bring a series of changes that may affect employers’ costs:

Agency workers (zero-hours contracts): the right to guaranteed hours, reasonable notice of changes and compensation for last-minute changes
Collective consultation on redundancies: changes to the threshold for collective consultation and the possibility of doubling the protective award from 90 to 180 days’ gross pay where consultation rules are not followed
Changing employment terms (fire and rehire): automatic classification as unfair dismissal where an employee or another person is re-engaged to do the same or similar work
Fair Work Agency powers: new powers to bring claims on behalf of workers, offer legal assistance and recover up to six years of underpayments (e.g. holiday pay and sick pay)
Statutory Sick Pay (SSP): the introduction of a new SSP allowance for those earning below the Lower Earnings Limit, set at 80% of normal weekly earnings
Flexible working: changes regarding the explanation of reasons for refusing flexible working requests

How to prepare for the new costs?

In the face of these changes, employers should take the following steps:

Review the payroll budget - assess the impact of the new rates and thresholds on the company’s costs
Update HR and payroll systems - make sure the software is adjusted to the new rates and thresholds
Review policies and procedures - particularly in relation to new rights, such as neonatal care Check eligibility for the Employment Allowance - a potential increase in benefits from April 2025
Plan cash flow - factor higher employment costs into financial plans for the 2025-2026 year

For Polish entrepreneurs running a business in the UK, understanding these changes and adjusting their business strategy and budgets accordingly is of key importance.

Is it worth considering other forms of employment?

In the context of rising direct employment costs, some employers may consider alternative forms of engagement. Bear in mind, however, that the United Kingdom has a range of regulations protecting employment rights, and misclassifying employees as contractors can lead to significant financial and legal consequences.

Before deciding to change your employment model, it is worth consulting an expert in UK accounting and employment law. Our accountancy practice offers comprehensive advice on registering and running different forms of business in the UK.

Summary

2025 brings significant changes to employment costs for employers in the United Kingdom. The increases in National Insurance contributions, the minimum wage and statutory payment rates mean higher costs of running a business. At the same time, the increased Employment Allowance may partially offset these costs for eligible businesses.

For Polish entrepreneurs operating in the UK, understanding these changes and adjusting their business strategy accordingly is of key importance. If you run your own business in the UK or are planning to start one, it is worth getting in touch with our experts, who will help you navigate these changes and optimise your employment costs in line with the new law.

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