Navigating the NIC Increase: A Roadmap for Early Years Settings

This issue’s Hot Topic Blog is from Lucy Lewin, nursery provider and a valued member of our associate team delivering provider support.Lucy looks at navigating the upcoming rise in National Insurance Contributions (NICs) from April 6, 2025, that presents a significant financial test for early years settings. With employer NICs increasing from 13.8% to 15%, and the threshold dropping from £9,100 to £5,000, the impact on staffing costs is undeniably significant. Here’s her five-step roadmap to understanding and managing this change effectively.

1. Evaluate the impact.

Start by mapping out the financial implications.Create a team overview: List all staff, their current hourly rates, and any anticipated increases by April 2025. Include their average weekly hours to estimate total wages.Identify threshold changes: Pay special attention to lower-paid staff, such as apprentices and bank staff, who may now fall into the NIC bracket due to the lower threshold.

2. Forecast the cost.

NIC increases require precise forecasting.Predict staff costs: Use your team data to calculate weekly costs at the new rates, factoring in the employer NIC increase. Annualise the impact: Multiply the weekly total by 52 to understand the annual increase. In my own setting, this exercise revealed a projected increase exceeding £30,000, a sum that cannot be absorbed without taking considered action.

Remember, this is not an exact science; it’s a forecasting tool designed to give you clarity on the scale of the impact.

3. Understand sellable hours and operational occupancy.

The interplay between staffing, occupancy, and pricing becomes crucial.Calculate sellable hours: Determine the total hours you can sell based on current staffing levels, and on what you estimate will happen from September when funded hours increase for some. This metric is vital for understanding your capacity and ensuring that you are pricing services effectively.Analyse operational occupancy: Compare your current occupancy to the hours you have available for sale.

4. Align costs with pricing.

The government’s expansion of funded childcare hours at a fixed rate adds another layer of complexity. To stay viable: Evaluate pricing: Ensure your fees reflect the true cost of provision, including the increased NICs and other rising expenses.Communicate with parents: Be transparent about the changes and how they affect your setting. Parents are more likely to support adjustments when they understand the broader context.Signpost them to support for childcare fees e.g. Universal Credit and/or Tax-Free Childcare.

5. Explore Mitigation Strategies.

Absorbing the increased costs might not be feasible, but there are options:Increase efficiency: Review staff rotas, use technology for scheduling, and explore ways to reduce wastage in other operational areas.Maximise employment allowance: With the increase in the Employment Allowance to £10,500, ensure you are making the most of this relief if your NIC liabilities are under £100,000.Review sales strategies: Assess how to fill unsold hours without overburdening staff or increasing costs disproportionately.

Collaboration and advocacy.

While these five steps can help manage the financial impact, the broader issue requires systemic change. Advocacy for fair funding rates and government support is critical. By uniting with organisations like Coram Hempsall’s, we can amplify the sector's voice and push for policies that ensure sustainability in return for the impacts we deliver.Navigating these changes won’t be easy, yet with careful planning, transparent communication, and collective action, early years settings can find a path forward.

Hempsall's