Impact on Salaries of Employer National Insurance Rise

The Impact of Increasing Employer National Insurance on Salaries in 2025

As businesses plan for the year ahead, one significant challenge shaping hiring strategies and employee pay reviews is the increase in employer National Insurance (NI) contributions. Findings from the latest Ashdown Group Salary Guide Survey reveal that this added cost burden will have a direct impact on salary growth in 2025 — with many businesses expected to curb pay rises or offer increases below employee expectations as a result.

Rising Costs and Slower Pay Growth

The Ashdown Group’s salary guide highlights a clear trend: salaries are likely to increase at a much slower rate in 2025 than in recent years, as employers wrestle with higher employment costs. With employer NI contributions increasing, the cost of hiring and retaining permanent staff has grown, leaving many businesses with less flexibility to offer inflation-beating pay rises.

The survey indicates that rather than passing on these increased costs to clients or customers, employers are instead absorbing them within their staffing budgets — leading directly to lower-than-expected pay increases for many employees, with an average pay increase of between 2-3% expected. Additionally, bonuses are being cut and, in some instances not paid. In short, employees will bear the brunt of these rising employment costs through a drag on salary growth.

How will increased employer National Insurance rates impact the job market and SMEs? Read more>>>

The Shift Towards Temporary and Contract Hiring

The financial pressure caused by rising employer NI, along with economic uncertainty, has also accelerated the growing demand for temporary workers and contractors, a trend Ashdown Group has been tracking closely. As outlined in the Ashdown Group’s report on rising demand for temporary recruitment, companies are increasingly turning to contingent staffing solutions to manage short-term project needs without committing to the long-term costs associated with permanent hires.

Temporary and contract workers offer businesses the agility to flex their workforce in line with demand, all while limiting their exposure to increased NI contributions and other permanent employment costs. This shift could, over time, erode opportunities for permanent hires and contribute to further stagnation in permanent salary growth.

A Balancing Act for Employers

Employers are walking a tightrope in 2025 — balancing the need to attract and retain talent in a competitive labour market with the financial realities imposed by rising NI costs. The Ashdown Group Salary Guide highlights how, in some sectors, skills shortages are still pushing up pay for in-demand roles, but for the majority of employees, pay package improvements are likely to be more modest than anticipated.

The result is a two-speed salary environment. Highly sought-after professionals, with in demand skills in sectors such as IT, finance, and legal services, are still commanding premium pay upgrades of up to 10%, but outside of these areas, increases are expected to fall closer to inflation for much of the workforce.

Managing Employee Expectations

The challenge for employers will be how to manage employee expectations. With cost-of-living pressures still front of mind for many, employees are likely to expect pay increases that reflect rising prices. However, with businesses shouldering higher NI costs and other economic pressures and uncertainties, there is a clear gap emerging between what employees want and what employers feel able to offer.

Open communication and total reward strategies — including benefits, flexible working, and career development opportunities — will play a crucial role in retaining talent when pay increases are constrained.

“For employees, this means managing expectations around pay rises — and for employers, it means finding creative ways to stay competitive in a labour market where cost pressures and skills shortages continue to collide.”

John Lynes, Director Ashdown Group

The importance of employer brand to retain and attract top talent. Read more>>>