Supporting SMEs to offset rising operating costs associated with National Insurance increases

Small and medium-sized enterprises (SMEs) are the backbone of the UK economy, making up 99.8% of all businesses.¹ However, they face increasing financial pressures from continuous rising operating costs such as: 

• Energy costs.
• Inflation and supply chain disruption.
• High interest rates.
• Overall economic uncertainty.

One of the significant financial pressures SMEs face is the increase in National Insurance Contributions (NICs). From April 2025, UK businesses will face an additional £25 billion in annual costs due to the employer NIC increases announced in the Autumn Budget.²

The employers' NIC rate will rise to 15%. This is up from 13.8%, while the threshold at which NIC applies will be reduced from £9,100 to £5,000 per year. This will significantly increase payroll expenses for businesses.

From speaking with our clients ahead of these changes, they see challenges in the form of: 

Higher employment costs 

Increased NIC rates means employing staff is generally more expensive and may make staff retention and recruitment more challenging. Particularly affecting sectors reliant on part-time and low-wage workers. 

Strain on cash flow

Reducing the NIC threshold means more employees' earnings will be subject to contributions, intensifying financial pressure on businesses with tight margins.³  

Challenges in offering competitive compensation

With rising operational costs, SMEs may find it difficult to provide salary increases or additional benefits. This will likely impact employee satisfaction and retention.

Compound impact of multiple cost pressures

These additional operating costs follow a period of sustained cost increases. Specifically in areas of energy, interest rates, and supply chain following disruptive years during and following the COVID-19 pandemic. 

Strategies to offset rising operating costs

Despite these challenges, opportunities exist to offset increased operating costs and improve overall financial resilience. Through several proactive supports available through Marsh: 

Capitalise on declining rates in the general insurance market

Operating costs for SMEs in the UK continue to rise. But the softening rates in general insurance market create an opportunity for businesses to reduce insurance costs in a more competitive market.

According to the Marsh Global Insurance Market Index,⁴ UK commercial insurance premiums dropped by an average of 5% in Quarter 4 2024. With property, casualty, cyber, and financial lines insurances all experiencing consistent quarterly declines, allowing for broader insurer appetite and increased competition. While Motor premiums remain challenged with claims cost inflation, the rate of increase has stabilised. And this trend is expected to continue into 2025.

Reviewing and renegotiating your insurance renewal could free up capital to offset rising NICs and other operating cost. This is especially true where businesses can demonstrate positive risk management and claims performance. Working with Marsh Commercial can help secure competitive rates and broader coverage, lowering overall risk costs and minimising exposure to uninsured risks.

Ensure your assets and loss impacts are adequately insured 

Maximising the value available from your insurance programme can help lower operating costs. But it is equally important to ensure you have adequate coverage in place for your assets. 

Inflation in previous years regarding construction materials, labour shortages, and supply chains will result in inadequate sums insured. It’s estimated that underinsurance still affects 76% of buildings. This could leave property owners exposed to potential lower settlements versus the value of repair or reinstatement.⁵

Rebuild Costs Assessments can help ensure adequate sums insured and reduce exposure to lower-than-expected settlements in the event of a claim.

Reviewing your business structure – Employment law support services 

Some businesses may require a review of their business structure and employment to contain cost increases. Marsh’s Risk Management team can provide guidance and support in navigating these changes through our HR employment law support services.

Outsourcing core functions – Health and Safety

Every business must have a named competent person responsible for Health and Safety. But businesses are often unaware this can be an external competent person or a mix of both. Marsh’s Risk Management team can provide this support, ensuring you meet the requirements of Health and Safety Law. Our hands-on consultancy and advanced technology help businesses of all sizes and industries confidently manage their:

• Employment
• Safety
• Wellbeing challenges

Letting you focus on the growth of your business. 

Reducing workforce costs through salary sacrifice  

Salary sacrifice (also known as salary exchange), is a tax-efficient way for employees to exchange part of their salary for non-cash benefits. For example, pension contributions, cycle-to-work schemes, or electric vehicle plans. Instead of receiving the full salary in cash, a portion is redirected to benefits, reducing both the employee’s taxable income and NICs. For employers, this means lower payroll costs, potentially saving up to 0.75% of total⁶ payroll expenses when applied to pensions alone. With additional benefits like childcare support and technology allowances, salary exchange can help offset rising workforce costs while enhancing employee rewards.

Summary 

There’s no doubt that UK SMEs are facing financial challenges. From rising NIC costs and energy bills to supply chain disruptions and inflation. But it’s not all bad news — there are opportunities to ease these pressures and help keep your business financially resilient.

Businesses can reduce costs without sacrificing growth. They can take advantage of lower insurance premiums, salary exchange schemes, and wider support services to lower operating costs. 

Marsh Commercial remain committed to support our clients navigate a challenging landscape. And through these strategies can go some way in supporting our clients off-set cost increased operating costs.

We also offer a no-obligation business insurance review to assess your cover needs and explore opportunities for improved protection, service, and pricing. Any potential savings identified could help offset the increased NICs and other costs businesses face.

Contact us to arrange your confidential risk and insurance review

Alternatively, if you want to know more or need support on some of the other themes covered in this article, please get in touch:

• Risk Management team for general risk management advice. Including Health and Safety, building valuations, and employment law.
• Marsh’s sister company, Mercer. For salary sacrifice advice and other employee benefits packages.

Sources

1. fsb.org.uk/uk-small-business-statistics
2. bbc.co.uk/articles/cdxl1zd07l1o 
3. gov.uk/changes-to-the-class-1-national-insurance-contributions-secondary-threshold-the-secondary-class-1-national-insurance-contributions-rate-and-the-empl 
4. marsh.com/international-placement-services
5. rebuildcostassessment.com/understanding-underinsurance 
6. This assumes employee contributions are 5% of total payroll