Announced in the last Autumn Budget, Employers National Insurance (ER NI) contributions will increase from 13.8% to 15% on 6 April 2025.
Although intended to increase public funding, this poses significant challenges for charities and not-for-profits, which already operate under financial constraints.
Therefore, charitable organisations must understand the implications and prepare for potential financial difficulties.
Higher Payroll Costs
With the ERNI increasing, the main challenge for charities, like other employers, is higher operating costs.
The per-employee threshold, at which ER NI applies, is being lowered from £9,100 to £5,000, further increasing staff costs.
However, this is countered by an increase in the Employment Allowance from £5,000 to £10,500. Additionally, the £100,000 threshold at which this relief stopped has also been removed, meaning that even large employers can now claim the allowance.
Smaller charities may find the changes to Employers National Insurance contributions is offset by increase of the employment allowance threshold.
However, larger charities will face significant staffing costs due to these changes, on top of increased living wages.
NCVO estimates that annual costs for the charity sector will increase by £1.4bn.
Service delivery
Due to substantial additional costs, charities with significant payroll expenses could notice an impact on their service delivery.
Charities should look to adjust their budgets and prepare for reduced services due to reallocation of funding.
Staffing challenges
Additionally, due to increased employment costs, charities may encounter staffing concerns. The sector already struggles with staff recruitment and retention; thus, charities may seek other methods to combat these challenges, such as recruitment freezes, reducing hours, or implementing redundancies.
Financial stability
The biggest concern charities encounter with existing financial pressures is the increased risk of insolvency.
So, how can your charitable organisation prepare?
We advise that you take proactive steps to review and plan for these increased staffing costs.
It is vital that your charity reviews financial forecasts and staff structure.
Charities can identify potential funding gaps or temporary cash shortfalls based on current staffing plans and cashflow projections. Trustees should determine if service delivery can remain consistent, and resources do not need to be reallocated.
Engage communications with stakeholders about the potential financial impact and seeking additional funding support or exploring new revenues streams could offset increased costs.
Planning for contingencies addresses any financial shortfalls, including prioritising critical activities. Monitor financial health closely and regularly to ensure early identification of risks.
Contact us if your organisation is worried about increasing Employers National Insurance Contributions.
