Employers are set to pay significantly more for minimum wage staff from April, as rises in National Insurance Contributions (NICs) and the minimum wage take effect.
According to an analysis by the Centre for Policy Studies (CPS), the cost of employing a full-time worker on minimum wage will increase by £2,583 per year, with employer NICs rising by 60% in the 2025/26 tax year. This follows changes announced in the Budget.
In 2024, businesses paid £1,617 in NICs per full-time employee on minimum wage. From 1 April 2025, this figure will rise to £2,583. The total annual cost of employing a low-wage worker will reach £24,806.
Rising costs for employers
The CPS has described the increases as ‘one of the most damaging’ tax rises in recent history, warning that businesses are reconsidering hiring and investment plans.
A full-time minimum wage employee currently earns £20,821 per year and pays £1,650 in income tax. This will rise to £22,222 in the next tax year, with income tax increasing by 17% to £1,930. Despite the £1,401 salary increase, income tax and National Insurance will absorb £280 and £112 of this, respectively, leaving workers with an after-tax income of £19,521.
Employer NICs will rise from £31 per week to £50, representing a significant additional cost for businesses.
Impact on small businesses
Beyond NICs, changes to the employer NIC threshold will also impact businesses. The threshold at which employers begin paying NICs will drop to £5,000, adding a further £966 to annual costs per employee.
The CPS has expressed concern that these increases will hit small businesses hardest, making job creation and retention more challenging. For many smaller businesses, the additional costs could make the difference between hiring new staff or freezing recruitment altogether.
Daniel Herring, a CPS researcher, commented:
“The more of an employee’s salary is owed in tax – whether paid by the employee or directly by the employer – the more costly it is for businesses to create and sustain jobs. Increasing taxes on employment harms businesses and workers alike.”
Government response and future outlook
Rachel Reeves, Chancellor of the Exchequer, has stated that there will be no further tax increases this year. However, a survey by investment firm AJ Bell suggests scepticism among the public, with 83% of respondents doubting the Government’s pledge.
When questioned by MPs, Reeves defended the Government’s strategy:
“This was a once in a parliament reset – we will never have to do a Budget like this again. Businesses are creative and will improve productivity. Small businesses struggle most with employer NI, so we increased the employment allowance to £10,000 for a million smaller businesses.”
Talk to us about these changes.
