How can operators navigate the 2025 NIC reforms?
By National insurance contributions (NIC) have become an albatross for most hospitality businesses. Three new measures were introduced in the Autumn Budget and are set to take effect in April 2025. Two in particular are expected to significantly impact the sector, with operators warning they’ll lead to more closures and job cuts.
What’s changing?
National insurance changes will be implemented from 6 April 2025. Here’s what’s changing:
Employer NIC is going up from 13.8% to 15%, drastically increasing the cost of labour.
The threshold at which employers will pay NIC will drop from £9,100 to £5,000, increasing the number of workers operators need to pay NIC for.
The £100,000 NIC liability cap for Employment Allowance (EA) is being removed, extending the NIC relief to larger businesses.
What do the NIC reforms mean for hospitality operators?
The new changes mean employing people will be more expensive – especially since the National Minimum Wage (NMW) will also increase in April.
In response to last year’s increase in NMW for over 21s, operators relied more heavily on younger workers. With the NIC threshold decreasing to £5,000 and NMW for those aged 18-20 going up by 16.3%, this isn’t a viable strategy any more.
What is Employment Allowance?
Employment Allowance (EA) is a benefit that reduces the amount of NI employers contribute. Eligible employers receive relief on their first £10,500 of NIC, only paying contributions on NIC balances over that.
EA was initially intended to support smaller businesses and, prior to April 2025, only those who paid less than £100,000 annually in NIC were eligible for it. That cap lifts in April, meaning more businesses will be eligible for the £10,500 EA allowance. However, there will still be some eligibility criteria and caps in place. Operators running more than one PAYE company, for example, will only be able to claim EA for their combined entities, not for each one.
Any NIC contributions made to agency staff or off-payroll workers under IR35 rules won’t count towards the £10,500 allowance.
All-in-one guide to HR & Payroll Legislation
Stay ahead of key workforce legislation changes. Download our Survival Guide to 2025 HR & Payroll Legislation for essential compliance tips and practical strategies to manage rising labour costs.
How can I manage the NIC increase?
The changes to NI will hit the vast majority of operators. While avoiding them isn’t an option, understanding how they affect your costs and margins is the first step to managing them effectively. This will help you assess whether your business can absorb the increases or if additional expenses need to be passed on to customers. Other strategies include:
Reviewing your staffing structure ahead of April
You may be able to save money by increasing some contracts to full-time hours and reducing the number of part-time workers you employ. Think about whether you need all your advertised vacancies or if the current team can cover gaps.
Optimise pay and pension set-up
If increased pension contributions or salary sacrifice arrangements appeal to your workforce, they could offer an opportunity to reduce employer NI and tax liabilities.
Consider apprenticeships as a cost-effective staffing solution.
Employers must allow apprentices 20% of paid time for training, but their NMW is lower, and some don’t require NI contributions.
Leveraging Fourth to help with NIC
The incoming changes to NIC are just the latest in a long list of legislative updates our industry has to tackle. From updates to tipping policies to new rules around neonatal care leave, navigating employment law can feel overwhelming.
Hospitality operators, large and small, rely on Fourth’s HR and Payroll solutions to stay informed and simplify compliance. Fourth’s integrated platform combines HR and Payroll tools with AI-driven forecasting and scheduling, reducing manual data entry for payroll teams and improving accuracy. Annual product updates ensure you’re always across the latest legislative changes, while batch update capabilities make managing compliance and updating employee records more efficient.
For HR software designed for hospitality, contact Fourth
To discover how Fourth can simplify your payroll processes and help you stay up-to-date with incoming changes, contact us today.
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Want more? Discover these resources:
- A Survival Guide to 2025 HR & Payroll Report
- 2025 HR & Payroll Legislation Checklist
- 3 Steps to Avoid Accidental Non-Compliance with National Minimum Wage
- What do you need to know about April’s new neonatal care leave?
- Employee Email Communication Template: Neonatal Care Leave Policy
- Employee Email Communication Template: National Minimum Wage Updates