The impact of the NICs increase on 2025 pay reviews: Stories from HR
Businesses are changing their 2025 pay rise plans as a result of the NIC increase. In this resource, we review the expected impact on pay award budgets.
Published: 13 December 2024 | Brightmine Editorial Team
The announcement of National Insurance Contributions (NICs) increases in the October Budget has had an impact on many organisations’ 2025 pay rise plans. We look at the expected effect on pay award budgets.
Organisations typically plan January and April pay reviews three or four months in advance, in September and January each year. Brightmine, formerly XpertHR, conducts its biannual survey of likely pay award plans for the coming year to fit into this schedule. For the current pay round, however, we produced pay award forecasts based on the information organisations had prior to the Budget on 30 October 2024 and the announcement of NICs in both the rate and the threshold from April.
To provide an update, we included a poll question in our latest pay and labour market update webinar, which took place on 5 December 2024.
The poll question was straightforward: we asked respondents how, at a top level, they expected the NICs increases to impact the budget for pay awards in 2025. The results are shown in chart 1. While many respondents were still undecided about the impact, around four in 10 confirmed that they will reduce the budget available for salary reviews as a result.
Chart 1: Expected impact of NICs increases on pay award budgets in 2025
To add depth to the poll results, we invited attendees to share further details of what their organisation is planning. Here, we share some of the plans in place.
Reduction in salary budget
A couple of respondents were able to put a figure on the likely reduction in the salary review that employees will receive. A large charity we spoke to earlier in the week also suggested that their pay review would be reduced by half a percentage point as a direct result of the NICs increase.
“This has had a major impact to our budgets – we were projecting an average 3% increase which is now decreased to 1%.”
“Impact likely to be reduction in award of more than 1 [percentage point].”
For some webinar audience members, the impact is felt particularly as it comes alongside an increase to the national living wage (NLW) that is likely to be above the overall budget set by the organisation for pay reviews in 2025.
“The downward pressure and combined cost to the business of NICs combined with the increase in NLW has meant our salary budget is decreased by 1 [percentage point].”
Finally, one organisation said that it would result in pay freezes for most employees.
“We are holding all salaries except for flight-risks to mitigate the impact.”
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No change to current pay award plans
When speaking to a group of charities just before the webinar, we found that while some organisations talked about having to find pay award budget savings to cover all the NICs increase, this was definitely not the consensus and many were either not looking to cover this from the paybill, or only part of the savings needed. We saw some similar practice among our webinar attendees.
“We will have to pass on this cost to customers.”
“Planning on keeping the same budget.”
Impact on other areas
While some respondents told us that the pay award budget would remain untouched, they instead gave details of other reward areas where savings would instead be sought:
“We were going to look at extending our benefits but would rather refocus back on pay.”
“We have delayed our pay review from January to April.”
“NIC increase will prevent us from recruiting, which we may have done again next year.”
“We would have liked to increase our company pension contribution, but we will no longer do this in favour of maintaining a proportion of the salary budget.”
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Brightmine
With more than 10,000 customers, Brightmine is a leading global provider of people data, analytics and insight – empowering HR leaders to deliver brighter business outcomes.
For more than two decades, Brightmine, formerly XpertHR, has continued to help HR leaders confidently navigate the evolving world of work through our unique combination of critical workforce data, AI-enabled technology, and trusted HR expertise.
Brightmine is a division of LexisNexis Data Services within RELX®, a global provider of information-based analytics and decision tools. RELX serves customers in 180+ countries with 35,000+ employees. Ticker: London: REL; Amsterdam: REN; New York: RELX.
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