Navigating National Insurance Changes: A Guide for Retailers

In last week’s Budget announcement, Rachel Reeves, the new Chancellor of the Exchequer, outlined sweeping changes to employer National Insurance Contributions (NICs) set to take effect in April 2025. Representing one of the most substantial tax shifts in recent years, these adjustments are projected to raise approximately £24 billion in the 2025-26 fiscal year, presenting significant cost implications for UK retailers. Key changes include a reduction in the secondary threshold, an increase in the main NIC rate, and a substantial enhancement to the Employment Allowance, among other updates.

For retail businesses, which frequently rely on large workforces, these National Insurance Contribution changes (NICs) pose substantial cost considerations. Examples illustrate up to a 50% rise in employer NICs for certain salary brackets, making the financial impact on payrolls clear. Additionally, the convenience sector—employing approximately 445,000 individuals—faces increased pressures, with each percentage point hike adding roughly £36 million to its overall cost burden. This post offers a detailed exploration of the new NIC rates, practical calculations for assessing your business’s financial impact, and effective strategies for mitigating these costs. We also present solutions to help your retail operations maintain stability amid these financial shifts and safeguard competitiveness in a challenging economic landscape.

Breaking Down the New NIC Rates

The Chancellor announced substantial modifications to employer National Insurance Contribution changes, which will take effect from April 2025. These changes represent one of the most significant tax adjustments in recent history, projected to raise approximately £24 billion in 2025-26. Here are the key modifications affecting retail businesses:

• Reduction in the secondary threshold from £9,100 to £5,000 per annum
• Increase in the main rate from 13.8% to 15%
• Enhanced Employment Allowance rising from £5,000 to £10,500
• Changes to Class 1A and Class 1B rates aligned with the main rate increase

For retail businesses, these changes translate into significant cost implications. For example, an employee earning £20,000 will cost their employer £2,250 in NICs (a 50% increase), while for those earning £40,000, the employer contribution rises to £5,250 (a 23% increase). The convenience sector currently employs around 445,000 people and faces particular challenges. ACS Chief Executive James Lowman said:

“The cold hard facts are that the measures announced in the past 24 hours have added two-thirds of a billion pounds to the direct cost base of the UK’s local shops. At a time when trade is tough and operating costs are stubbornly high, this will be challenging for our members to absorb and there will be some casualties on high streets and in villages and estates across the country”

Current employer NICs cost the sector £312 million in 2024 – each percentage point increase in employer NICs adds approximately £36 million to the sector’s costs. These changes come alongside existing modifications for employees, including the reduction in the main employee rate to 8% from April 2024 while maintaining the 2% rate on earnings above the upper earnings limit.

Calculating the Financial Impact on Your Retail Operations

Understanding the precise calculations is crucial for accurately assessing the financial impact of NICs on your retail business. Below, we examine how these modifications affect your operational costs across different salary brackets. For retail businesses, the financial implications vary significantly based on employee salary levels. Here’s how the new rates impact your costs:

• For employees earning £20,000: NICs increase to £2,250 (up by £746)
• For staff earning £40,000: NICs rise to £5,250 (up by £986)
• For management earning £60,000: NICs rise to £8,250 (up by £1,226)

Lowering the secondary threshold to £5,000 means you’ll start paying NICs on lower earnings levels. This particularly affects retailers with part-time staff or those on lower wages. When combining employer and employee contributions, the effective total rate will be 23%.

Benefits-in-kind also face increased costs, with Class 1A and 1B NICs rising in line with the main rate increase. However, the enhanced Employment Allowance of £10,500 does offer some relief, particularly beneficial for smaller retail operations. For businesses considering discretionary bonuses, strategically timing these payments around the NIC rate changes can prove more cost-efficient for employers and employees. Regular payroll reviews become essential to identify any necessary adjustments to NI categories and ensure compliance with these new rates.

Cost-Saving Measures to Counter NIC Increases

Rising operational costs are impacting retail businesses, making implementing strategic cost-saving measures crucial for maintaining profitability. Metro, from RMS, offers a comprehensive suite of solutions to help retail (and hospitality) businesses manage their multi-site operations more effectively. Here are eight key features and benefits of the Metro digital workplace:

Simplify Tech: On average, retailers use between 15 to 30 different software tools in their operational tech landscape, with many of these fractured, operating in silos and with diverse commercial, support, and integration approaches. Metro’s innovative ‘pick, mix and match’ foundation delivers more than 100 cross-functional applications from a single, cloud-based instance – One Contract, One Support Agreement, One Monthly Payment.

Seamless Communications: Many retailers still use outdated communication methods (like email and intranets), which are unsuitable for a fast-paced retail environment. Modern digital solutions like Metro Unified Comms provide a unified platform integrating various communication channels, such as instant messaging, video, and tasks, into one seamless system. They are proven to elevate retail performance, improve communication, enhance engagement, and boost operational performance, helping retailers attract and retain top talent.

Simplify Processes: Repetitive store processes, such as daily ‘due diligence’ checks, are essential but time-consuming and prone to inconsistency and errors when done manually on printed paper checklists. Digital task management solutions like Metro Process can automate these tasks, improving efficiency and freeing employees to focus on more meaningful and productive activities, like customer service and stock replenishment. By digitising store processes with tools like Metro Process, retailers can significantly improve operational efficiency and productivity, ultimately enhancing the overall customer experience.

Real-Time Visibility: Retailers often struggle with a lack of real-time data regarding individual store performance, leading to delayed decision-making and inconsistent task execution. Digitising store operations with solutions like Metro Unified Comms provides head office, field and store teams with rich, dynamic, real-time KPI data, helping monitor compliance and identify areas for improvement. Displayed as KPI tables and league ladders, crucial business performance information is always ‘front and centre’ of the entire business.

Staffing Minimum: Missed opportunities to increase sales, optimise labour costs, and enhance the customer experience can be costly. Metro’s Workforce Management (WFM) module ensures peak employee efficiency and effective resource allocation, guaranteeing that the correct number of staff are in the right place at the right time. Designed specifically ‘for retailers, by retailers’, Metro WFM offers bottom-up labour scheduling based on Cost to Sale, Sales Forecasting, Role Mapping, Skills, and other productivity factors, allowing for the quick creation and publication of fully costed work schedules.

Time is money: Metro’s Time and Attendance module offers numerous benefits to retailers, enhancing operational efficiency and employee management. It ensures accurate time tracking, which, in turn, reduces payroll errors and helps manage labour costs. Additionally, it aids in compliance with labour laws, boosts employee satisfaction through self-service features, and eliminates uncomfortable scenarios where employees are not paid correctly.

Store-based Print: The shelf edge is one of the most precious pieces of retail estate a retailer controls. It is undoubtedly the battleground where sales are won, or customers lost as they seek the information they need to make a buying decision. So why do so many retailers get it wrong in this crucial area? At RMS, we understand the importance of shelf-edge ticketing and enhancing the shopping experience, which is why we developed Metro Print. This module allows store teams to quickly and easily create on-demand accurate, attractive, and impactful shelf-edge labels and POS material, ensuring the best shelf-edge experience, helping to maximise sales and improve customer satisfaction.

Capacity Planning: Retailers constantly have to balance maintaining smooth operations and executing crucial in-store projects. This balancing act can be particularly challenging when implementing changes like store redesigns, technology upgrades, or planogram updates, which can disrupt the shopping experience and lead to customer dissatisfaction. Miscommunication or lack of coordination can lead to delays, errors, and increased costs in these activities. Metro Activity Planner offers a comprehensive solution to streamline project planning, enhance productivity, and maintain operational standards. Integrated with other Metro modules and data sources, Activity Planner provides a unified view of all workload and resource requirements within a store and across the business.

Conclusion

Metro supports your entire team, from Head Office, Warehouse Distribution, Store Operations, and HR to deskless frontline teams working in the field and stores, providing tools to streamline processes and ensure compliance with regulations. It is trusted by many of the most well-known brands in the retail, hospitality, and healthcare sectors, making it a reliable choice for businesses looking to enhance their operational efficiency and manage costs effectively. Navigating the rise in National Insurance Contributions poses a real challenge for UK retailers, impacting their bottom lines and operational resilience. However, with proactive planning and the right tools, your business can mitigate these costs and find new efficiencies. Adopting innovative solutions like Metro can streamline operations, enhance workforce management, and reduce costs across your retail operations.

At RMS, we’re dedicated to helping businesses like yours tackle these financial pressures with strategic, tailored solutions that enable you to ‘do business better’. That’s why we’re offering all retail and hospitality operators a free strategy session to explore how to minimise the impact of the NIC rise.

You can contact me directly or via www.metrofy.com to set up your strategy session and take the first step towards more resilient, cost-effective retail operations.