The increase in employer National Insurance Contributions (NICs) is here — how will your business adjust?
With the rate now at 15%, along with a lower secondary threshold, employers face 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. Innovative employers are finding creative solutions. From smarter workforce strategies to inventive compensation models, they’ve turned a potential setback into an opportunity to keep employees engaged and their organisations thriving.
In this article:
- Save big with salary sacrifice schemes
- Prioritise perks over pay
- Maximise government incentives and tax reliefs
- Restructure your workforce model
- Upskill instead of hiring
- Don't underestimate flexible and hybrid work
- Automate to reduce administrative costs
- Cut overheads with energy efficiency
Key strategies to reduce NIC costs while retaining top talent
1. Save big with salary sacrifice schemesHowever, transparency is key. Communicate the value of salary sacrifice clearly to ensure employees see it as a benefit, not a pay cut!
Register below for our upcoming webinar to explore this in more detail
Salary sacrifice secrets - how the right benefits can add up to NICs savings
2. Prioritise perks over pay
3. Maximise government incentives and tax reliefsRelated reading: how employers use employee benefits to can cater for multi-gen workforces
- Employment allowance: small businesses can claim up to £10,500 against NICs from April 2025
- R&D tax credits: businesses that invest in innovation can reduce taxable profits
4. Restructure your workforce modelRelated reading: Everything you need to know about payroll changes for 2025/26
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.
5. Upskill instead of hiring
Increased headcount will inevitably increase payroll taxes, benefits costs, and NIC liabilities. Instead, you could maximise your existing workforce. Consider cross-training employees to fill skill gaps, invest in leadership and management training, and making use of your apprenticeship levy funds (if applicable).
A lean, highly skilled team helps HR leaders control costs and strengthens overall business resilience.
6. Don't underestimate the value of flexible and hybrid work
Debates over remote work continue. And while some organisations want employees back at 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 (which further reduces hiring and onboarding expenses).
Employers who embrace remote and hybrid models can offset rising payroll taxes and keep their people happy.
7. Automate to reduce administrative costs
Automation can be a game-changer for reducing NIC-related expenses. When you automate repetitive administrative tasks such as payroll processing, invoice generation, and data entry, you can streamline operations and become less reliant 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 strategic decision.
Download our payroll factsheet below to learn more about our API-led, cloud-based, real-time payroll trusted by UK organisations.
8. Cut overheads with energy efficiency
Reduced 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.
Top takeaways: food for thought
- 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
The best time to act is now
There's no denying that rising NIC costs are a challenge. But, when you've got a thoughtful strategy in place, they also offer HR leaders a chance to challenge the status quo. When you focus on cost efficiencies, employee satisfaction, and proactive planning, you can navigate these changes without jeopardising talent acquisition or retention, and future-proof your business.
Why not book a demo of our platform to see it in action? Or, if you prefer, download our factsheet to learn more about Ciphr benefits.
* Avantus, a Ciphr company, does not provide tax or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax or accounting advice. You should consult your own tax and accounting advisors before engaging in any scheme. This content was initially published by Phil Curtis on Flexgenius.co.uk, a Ciphr company, and has been copied over to Ciphr.