Navigating The National Insurance Increase and The Financial Pressure It Brings

The increase in NIC rates combined with the reduction in the secondary threshold will force businesses to closely examine overheads.

The upcoming changes to National Insurance (NI) rates in April 2025 will significantly increase labour costs for businesses across the UK, but how exactly can outsourcing assist in lowering overheads? 

Outsourcing provides an effective way to reduce costs, particularly as the employers’ NIC rate increases from 13.8% to 15%, further adding to payroll expenses. With the secondary threshold decreasing from £9,100 to £5,000, more wages will be subject to NICs, making in-house employment even more expensive.

By outsourcing, businesses can avoid these costs entirely for roles that do not require permanent staff. Instead of paying for full-time salaries, pensions and benefits, businesses can engage third-party providers for essential IT functions on an as-needed basis, drastically reducing financial outlay.

You Decide The Frequency

Additionally, outsourcing allows companies to access highly skilled expertise without the long-term commitments associated with hiring permanent employees. For small and medium-sized enterprises (SMEs), which may lack the resources to attract and retain top-tier IT professionals, this flexibility is invaluable. External providers bring experienced roles such as project managers, business analysts and software testers to the table, ensuring that projects are delivered efficiently without the time and expense of onboarding or training in-house staff.

A further advantage of outsourcing is the ability to scale resources according to demand. During critical project phases, businesses can rely on additional outsourced staff, such as software testers or business analysts and then reduce engagement once the project is complete to avoid the challenges of redundancies or underutilised employees. This level of scalability is vital, especially when rising labour costs make it financially risky to maintain large in-house teams during periods of lower demand.

Avoid Complexities and Red Tape 

The growing complexity of compliance requirements also makes outsourcing an attractive option. Labour law changes, including the increased Employment Allowance and the removal of its eligibility threshold, add administrative burdens to managing in-house teams. By turning attention to outsourced IT services, businesses shift much of this compliance responsibility to the external provider, reducing risk and simplifying operations.

Outsourcing also allows businesses to refocus their internal resources on core objectives. Managing IT projects or ensuring software quality can often distract from strategic goals. Delegating these functions to specialists enables companies to concentrate on their primary operations, while IT support is handled seamlessly by experienced professionals.

Vulnerability and Tighter Margins

The forthcoming changes to National Insurance will have widespread implications. Employers’ NICs will rise to 15%, while the secondary threshold reduction means that a larger portion of employee wages will be subject to NICs. While the increase in the Employment Allowance from £5,000 to £10,500 will provide some relief to smaller businesses, it will not fully offset the broader rise in costs. For sectors like hospitality and retail, which rely on younger and lower-paid workers, the financial impact of these changes will be particularly severe.

Small and medium-sized enterprises are especially vulnerable, as they often operate with tighter profit margins. For many, the rising labour costs may necessitate difficult decisions, such as cutting jobs or delaying growth initiatives. Outsourcing non-core IT functions offers a viable way to control costs, freeing up resources to retain key staff or reinvest in business operations.

Benefits Beyond Cost Savings

The benefits of outsourcing go beyond cost savings. It provides financial predictability, as businesses transition from variable employment expenses to fixed service contracts. This stability is crucial in times of economic uncertainty. Moreover, outsourced providers often bring advanced tools and methodologies that improve productivity and project delivery timelines. By reducing the need for capital investments in new technologies, outsourcing allows businesses to benefit from innovations in areas like artificial intelligence, cloud services and automation without incurring significant upfront costs.

Tomorrow Is Too Late

It never feels like the right time to act, but the stark reality is that every day you put off your digital transformation journey, you're a step closer to falling foul financially.

If you're seeking expert digital transformational advice, we always welcome people to our offices to meet our team first-hand and understand how our expertise in people, systems, and processes (PSP) can directly benefit their business, so let's talk.