How Have Businesses Coped With The Employer NIC Hike?

The increase for Employer National Insurance ContributionsThe increase for Employer National Insurance Contributions has not been the best for UK businesses. From April, the Labour government raised the rate from 13.8% to 15%. In just three months under this change, the impact has already shown up in national tax data. According to the Global Payroll Alliance, receipts from Employer NICs grew by 12.4% between January and June 2025 compared to the same period in 2024.

While the full tax year is still going on, this growth came from only a quarter of the year under the higher rate. If it continues at this rate, the final numbers could be way higher by the end of this year. This hike adds to the pressure on employers, especially those already managing tight margins or recovering from other cost increases in recent years.

Melanie Pizzey, CEO and Founder of the Global Payroll Alliance, says, “In a few short months, we are already seeing the dramatic impact that the government’s Employer NIC increase is having on the UK economy. Businesses are paying vastly more tax than they did this time last year, while income tax from PAYE employees has taken a massive slump.”

At the same time, the number of people employed under the PAYE system has gone down. The Global Payroll Alliance found that the UK lost over 160,000 PAYE workers following the tax change. This might require one thing from businesses in response and that is, cutting back on staffing where possible to keep costs manageable.

The CEO added, “With the increase of one being more or less negated by the decrease of another, it’s hard to see any benefit whatsoever that has come from Labour’s decision. When you make it more expensive to employ people, it’s obvious that businesses are going to employ less people.

“In fact, only the largest, most profitable businesses have any hope of maintaining previous staffing levels while the SMEs who are vital to the economy today and hold the potential to grow into the large businesses tomorrow are cut down and forced to minimise operations if not cease operations altogether.”

 

What Do the Numbers Say About The Overall Tax Take?

 

The total amount of tax collected by HMRC between January and June this year reached £460.8 billion. This is a 4.9% increase compared to the first half of 2024. The largest rise within this total came from Self Assessment Income Tax, which increased by 16.5%. This category covers taxes paid by the self-employed and people with complex tax situations.

Income Tax overall reached £170.5 billion, growing by 9.9%. PAYE Income Tax, paid by those on company payrolls, grew by 9.1%. These numbers, from the Global Payroll Alliance’s analysis, show strong growth in income-based tax collection. The change in Employer NICs, though, is the most deliberate sign of change for businesses.
 

 
What’s interesting is that Employee NIC receipts actually fell. They dropped by 11.1% compared to the first six months of 2024. This drop could mean that the increase in Employer NICs has discouraged hiring. In other words, the tax rise may have prompted companies to hire fewer workers or move staff to non-PAYE arrangements.

 

Are Staffing Costs Causing A Rethink?

 

Staffing costs are a large part of operating budgets, especially in retail, hospitality, care, and other labour heavy fields. The Employer NIC hike has made it more expensive to employ anyone, even before wages and benefits are factored in.

Many businesses now face harder choices about how they hire. Some may freeze recruitment. Others might outsource or move towards using freelancers who handle their own tax contributions. This change in behaviour can be seen in the fall in PAYE employees, as reported by the Global Payroll Alliance.

The increase in Employer NICs may also mean slower growth for small enterprises. Hiring becomes more of a gamble, particularly if business owners worry about unpredictable income. While the tax rise is aimed at raising government revenue, the cost to businesses is becoming clearer.

 

Could This Affect The Shape Of The Workforce?

 

The early response to these changes hints at a shift in how businesses manage their teams. The fall in PAYE employee numbers suggests a move away from permanent staff roles. Freelance, contract, or gig-based work could become more common if it helps employers keep costs down.

At the same time, fewer people on payrolls could eventually reduce the growth seen in PAYE Income Tax. If businesses continue to limit hiring, that might offset some of the gains currently seen in tax collections.

Based on the data from the first half of 2025, the higher Employer NIC rate has already changed how some businesses operate. It has raised staffing costs, reduced PAYE hiring, and changed the shape of national tax collection…all within a matter of months.