What Can UK Businesses Do to Retain Employees After the NI Increase?

ByPenny Strutton

The UK’s economic landscape is constantly shifting, and recent changes to National Insurance (NI) contributions are adding another layer of complexity for businesses. While these changes aim to support public services, they also present potential challenges for employee retention. As a business and leadership coach, I’m seeing firsthand how these financial pressures can impact employee morale and loyalty. Let’s break down the situation and explore practical strategies to navigate this.

The NI Changes: A Quick Recap

From April 2025, UK employers face a double whammy:

  • Increased NI Rate: The employer’s NI contribution rate is rising.
  • Lower Threshold: The threshold at which employers start paying NI contributions is decreasing.

This means higher payroll costs for many businesses, a reality particularly felt by SMEs already operating on tight margins.

The Retention Risk: Why This Matters

While the immediate impact is financial, the ripple effect on employee retention is significant. Here’s why:

  • Pay Pressures: Businesses may find it harder to offer competitive salaries or the pay increases employees expect, especially with the rising cost of living. This can lead to dissatisfaction and employees seeking better-compensated roles elsewhere.
  • Financial Anxiety: Employees are also feeling the pinch from inflation and the overall economic climate. If they perceive their employer isn’t adequately compensating them, financial anxiety increases, making them more likely to look for a more financially secure position.
  • Reduced Benefits: To offset increased costs, some companies might cut back on benefits or perks, which can further erode employee satisfaction and loyalty.

UK Retention Trends: A Warning Sign

It’s crucial to consider these NI changes within the broader context of employee retention trends. Recent data paints a concerning picture:

  • There are predictions that a significant percentage of UK workers are planning to quit their jobs in 2025.
  • Research indicates that UK attrition rates are set to increase, with a notable percentage of workers planning to leave their jobs in the short term.

These figures highlight the urgency for businesses to proactively address employee retention, and the NI rise adds another layer of complexity to this challenge.

Strategies for Navigating the NI Rise and Boosting Retention

So, what can UK businesses do to mitigate the impact of the NI rise on employee retention? Here are some key strategies:

  1. Prioritise Employee Wellbeing:
    • Recognise that financial stress directly impacts mental and emotional well-being.
    • Offer resources and support for financial well-being, such as financial planning workshops or access to debt counselling.
    • Promote a healthy work-life balance to reduce overall stress levels.
  2. Rethink Compensation and Benefits:
    • While large salary increases may be difficult, explore creative compensation strategies:
      • Salary Sacrifice Schemes: These can be a tax-efficient way for employees to increase their pension contributions, potentially offsetting some of the financial burden.
      • Performance-Based Bonuses: Tie bonuses to specific achievements to incentivise and reward high performers.
    • Enhance non-monetary benefits:
      • Offer more flexible working arrangements.
      • Invest in employee development and training.
      • Provide enhanced health and wellness benefits.
  3. Invest in Employee Development:
    • In today’s job market, growth and learning opportunities are crucial for retention.
    • Provide personalised learning paths that align with employees’ career goals.
    • Offer training to upskill employees for future roles within the company.
    • As I often emphasise in my Leadership Development programs, developing strong leaders who support employee growth is essential.
  4. Strengthen Communication and Culture:
    • Maintain open and transparent communication about the company’s financial situation and any changes to compensation or benefits.
    • Create a culture of recognition and appreciation. Make employees feel valued for their contributions.
    • Actively seek employee feedback and address concerns promptly.
  5. Optimise Workforce Management:
    • Review workforce needs and explore options like flexible working arrangements or part-time roles where appropriate.
    • Consider automating tasks to improve efficiency and reduce reliance on manual labour.

Looking Ahead: Proactive Retention is Key

The National Insurance rise presents a challenge, but it also compels businesses to re-evaluate their employee retention strategies. By prioritising employee well-being, offering competitive and creative compensation, investing in development, and creating a strong culture, UK businesses can overcome these changes and build a resilient, engaged workforce.

If you’re looking for support in developing effective employee retention strategies for your organisation, please contact me for a consultation.

FAQs

What are the main ways the National Insurance (NI) rise in 2025 is expected to impact employee retention for UK businesses?

The NI rise is primarily expected to impact employee retention by creating pressure on pay and benefits. Businesses may find it more challenging to offer competitive salaries or the expected level of pay increases due to increased payroll costs. This can lead to employee dissatisfaction and increased financial anxiety, making them more likely to seek employment elsewhere. Additionally, some companies might reduce benefits or perks to offset the additional costs, further contributing to employee dissatisfaction and turnover.

What are some cost-effective strategies UK businesses can use to improve employee retention in light of the NI increase without necessarily increasing salaries significantly?

  • While salary is important, there are several effective strategies beyond large pay rises:
    • Focus on employee well-being: Offer resources for financial well-being and promote a healthy work-life balance.
    • Rethink compensation: Consider salary sacrifice schemes for pensions or performance-based bonuses.
    • Enhance non-monetary benefits: Provide more flexible working arrangements or invest in employee development and training.
    • Strengthen communication and culture: Maintain open communication, foster a culture of recognition, and actively seek employee feedback.

How important is leadership development in retaining employees during times of economic uncertainty and changes like the National Insurance rise?

Leadership development is crucial. Strong leaders play a vital role in creating a supportive and engaging work environment. They can effectively communicate changes, address employee concerns, and create a sense of value and purpose. Investing in leadership development programs that focus on empathy, communication skills, and employee empowerment can significantly improve retention, even when businesses face external pressures like the NI increase.