The impact of the NICs increase on 2025 pay reviews: Stories from HR

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 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.

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.

Finally, one organisation said that it would result in pay freezes for most employees.

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.

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: