As a practice manager, keeping an eye on the wage bill is critical, especially when regulatory changes significantly impact staffing costs. With the recent government announcements, practices across England are facing several cost increases from April 2025. Here’s a breakdown of what’s changing, how it affects your practice, and what you can do to prepare.
1. New National Insurance Contributions for Employers
From April 2025, the National Insurance (NI) contributions for employers will see a significant change:
• Increased Rate: The NI rate for employers is set to rise from 13.8% to 15%.
• Lower Threshold: Previously, NI was applied to salaries above £9,100. Now, that threshold will be lowered to £5,000.
This means that from April 2025, employers will pay a higher percentage of National Insurance contributions, and they will start paying on a lower salary threshold. Let’s look at what this change means in practical terms.
Example of Increased NI Costs
NI is calculated per employee, in this example per £100,000 wage spend the practice has three employees. Each earning an average of £33,333 per year, the impact of this change on National Insurance contributions is considerable.
1. Current NI Contributions (Before April 2025)
• Threshold: £9,100
• Rate: 13.8%
• Taxable Salary (per employee): £33,333 – £9,100 = £24,233
• NI Contribution (per employee): £24,233 x 0.138 = £3,345.15
2. New NI Contributions (From April 2025)
• New Threshold: £5,000
• Rate: 15%
• Taxable Salary (per employee): £33,333 – £5,000 = £28,333
• NI Contribution (per employee):£28,333 x 0.15 = £4,249.95
3. Difference per Employee:
• Increase in NI Contributions per Employee: £904.80
4. Total Increase for 3 Employees:
• Total Additional Cost: 3 x £904.80 = £2,714.40
For practices with a salary bill of £100,000 split among three employees, this change alone would lead to an additional £2,714.40 in National Insurance contributions annually. The combined effect of the increased NI rate and lowered threshold means that practices will be paying substantially more to cover the same salaries.
2. Minimum Wage Increase: An Additional Impact
In addition to the National Insurance changes, there is also an increase to the national minimum wage:
• The minimum wage will rise from £11.44 per hour to £12.21 per hour.
This may not seem significant at first glance, but for practices with staff on minimum wage or near-minimum wage rates, this increase will have a compounding effect on the wage bill. For example, for a full-time employee working 37.5 hours per week, the annual salary will increase as follows:
• Current Minimum Wage Annual Salary:
£11.44 (hourly rate) × 37.5 (hours per week) × 52 (weeks per year) = £22,308
• New Minimum Wage Annual Salary:
£12.21 (hourly rate) × 37.5 (hours per week) × 52 (weeks per year) = £23,791.50
Annual Increase per Full-Time Employee: £23,791.50 – £22,308 = £1,483.50
For each full-time employee on minimum wage, this increase will add almost £1,500 to your annual wage bill, on top of the additional NI contributions.
What This Means for Practice Managers
These changes represent a substantial increase in employer costs. The rising National Insurance contributions and higher minimum wage mean that practices will need to budget more carefully for staffing expenses. Here are some key considerations:
1. Review Staffing Costs: Calculate the new NI contributions and wage increases to understand the full impact on your practice’s budget.
2. Consider Workforce Adjustments: Where possible, evaluate whether adjustments can be made to staffing hours or roles to manage the increased costs without compromising patient care.
3. Explore Efficiencies: Look at ways to streamline administrative processes or leverage digital tools to improve efficiency and reduce the need for additional staffing hours.
Preparing for the Financial Impact
For practice managers, these upcoming changes underscore the importance of financial planning and effective workforce management. Here are some steps to help you prepare:
1. Calculate the Impact on Your Budget: Use the worked examples above to calculate how these changes will affect your specific wage bill.
2. Engage with Your Accountant: Ensure your accountant or payroll provider is fully briefed on these changes to avoid unexpected costs when they take effect.
3. Consider Alternative Staffing Options: Explore options such as locum or part-time staff where feasible to help manage costs flexibly.
Final Thoughts
While the government’s changes aim to provide fair wages and additional funding through National Insurance contributions, they do place a greater financial burden on employers in general practice. Planning ahead and understanding the specific impact on your practice will allow you to adapt to these changes without compromising the quality of care provided.
By staying proactive and informed, practice managers can navigate these changes effectively, balancing fair compensation for staff with the financial health of the practice.