New research1 by Canada Life has revealed one in eight (12%) UK small businesses may have to cut employee benefits linked to employee health2 to cover the increased business cost of employer National Insurance contributions (NICs) from 6 April.
The research investigates what actions micro, small and medium-sized enterprises (SMEs)3 will likely take when the employer NIC changes come into effect.
From 6 April 2025, employers' National Insurance contributions will increase from 13.8% to 15%. The level at which employers start paying NICs (the secondary threshold) will also reduce from £9,100 to £5,000 per year.
Canada Life’s research found SMEs employers are preparing to take on the additional cost of doing business. One in five (20%) intend to accept lower profitability and do not intend to pass the extra cost onto employees or customers, and three in 10 firms (30%) intend to reduce costs by finding cost efficiencies within the business.
However, employees could still feel the impact of the tax increase. A quarter (26%) of SMEs reported that they plan to reduce pay rises and bonuses, a fifth (21%) said that they will stop creating or filling job vacancies (21%), while one in eight (12%) plan to reduce the financial employee benefits that they provide to employees, or make redundancies.
The type of insurance-based employee benefits at risk include group income protection, which pays an employee’s income if the employee is absent through long-term sickness, and group critical illness, which pays a sum of money to the employee if they suffer a serious illness such as cancer, heart attack and stroke, so they have financial support for the longer-term impact as well as time to recover.
While the primary role of these benefits is to provide a financial lifeline to the employees during ill-health, there’s advantage for the employer too. They usually come with preventative healthcare support for employees – to encourage and help manage day-to-day wellbeing – and early intervention services to help the employer understand and support the employee through their health situation, so they can get back to work and be productive.
This research comes at a time when the government is already concerned about employee health and employers’ roles in relation to it.
The discovery phase of the independent Keeping Britain Working Review, published on 20 March 2025, set out the government’s interest in employee health, the factors behind the UK’s high levels of economic inactivity, and how government and employers can work together to tackle the issue4.
Commenting on the research findings, Chris Morgan, Head of Product & Proposition Strategy, Protection at Canada Life, said:
“Given the challenges SMEs face with higher costs, it’s understandable that many are looking to make efficiency savings and some intend to cut employee benefits to help achieve that. However, I would urge employers to consider their options carefully.
“Cutting employee benefits such as income protection and critical illness insurance could over time make the situation worse – for employers and employees – such is the positive impact that these benefits can have on employee health and business capability.
“These benefits don’t just pay an employee’s income if they’re absent through long-term sickness or pay a sum to the employee so they have space to recover when seriously ill. They also provide vital vocational rehabilitation that help employees back into the workplace when they’re ready, as well as healthcare services that can support employee health and improve mental wellbeing long before an absence occurs.
“Employee benefits play a key role in supporting the resilience of the UK’s workforce and tackling the UK’s current high rates of economic inactivity through a preventative approach. It is positive to see the Government’s focus on this agenda, and its work through the Mayfield Review to bring insurers, experts and businesses together to solve health challenges collectively and support employees.
“Any SME who is unsure whether they should cut or change the benefits they offer to employees should speak to their employee benefits consultant or financial adviser to discuss their options, as any change could have a longer-term impact on both employees’ wellbeing and their productivity.”
-ENDS-
Notes to editors
1. Research conducted by Opinium, March 2025. Sample survey - 550 HR decision-makers at UK micro (1-9), small (10-49) and medium-sized (50-249) private sector employer businesses
2. Respondents were asked which actions they would take, if any, as a result of the employer National Insurance contribution increase.
3. Small to medium-sized businesses (SMEs) have between 1 and 249 employees.
4. The Keep Britain Working Review discovery, led by former John Lewis CEO Sir Charlie Mayfield, noted 8.7 million people in the UK (one in five of the working age population) have a work limiting health condition. It also found people who are out of work for less than a year are five times more likely to return to work compared to those who are out of work longer.
Enquiries:
Julie Hughes-Edwards,
Canada Life, 07803 249343,
julie.hughes-edwards@canadalife.co.uk
About Canada Life:
Canada Life is part of a group of companies controlled by Great-West Lifeco Inc., a Canadian headquartered, international financial services holding company with interests in life insurance, health insurance, retirement and investment services, asset management and reinsurance businesses. Through its subsidiary companies, Great-West Lifeco operates in Canada, the United States, and Europe. Great-West Lifeco trades on the Toronto Stock Exchange under the ticker symbol GWO and is a member of the Power Corporation group of companies.
Canada Life Limited began operations in the United Kingdom (UK) in 1903 and provides UK individuals and businesses with a range of retirement, investment, insurance and wealth solutions. Canada Life offers individual annuities, pension de-risking solutions, home finance, estate planning and investment options, and workplace protection products.
Canada Life Limited (no.973271) is registered in England and Wales, authorised by the Prudential Regulation Authority, and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Stonehaven UK Limited (no.05487702), trading as Canada Life, is registered in England and Wales and is authorised and regulated by the Financial Conduct Authority. Canada Life International Limited (no.033178C) and CLI Institutional Limited (no.108017C) are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority. Canada Life International Assurance (Ireland) DAC (no. 440141) and Canada Life International Assurance (Ireland) DAC are authorised and regulated by the Central Bank of Ireland.
Canada Life Asset Management is the brand for investment management activities undertaken by Canada Life Asset Management Limited (no.3846821), Canada Life Limited and Canada Life European Real Estate Limited (no.03846823). Canada Life Asset Management Limited is authorised and regulated by the Financial Conduct Authority.
Please note that while Canada Life Limited and Canada Life Asset Management Limited are regulated as stated above, property management and the provision of commercial mortgages are not regulated activities.
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