A summary of key factors that impacted Employee Benefits in 2025
Rising National Insurance Costs
Employer National Insurance Contributions increased from 13.8% to 15% from April 6, 2025, adding approximately £900 annually per employee on a median salary. While rising costs are never welcome, this prompted many businesses to review their benefits strategies.
Salary Sacrifice Schemes
43% of employers introduced salary sacrifice schemes in response to the Autumn 2024 budget changes. These schemes offer NI savings for both employers and employees on benefits like pensions, bicycles, electric vehicles, and additional holiday leave. However, there is a significant upcoming change: from 2029, NI relief on pension salary sacrifice will be capped at £2,000 annually per person, with 74% of current users remaining unaffected.
Mental Health Support
Mental health support ranked top on the list of expected employee needs in 2025, with 31% of employers anticipating an increase in demand. Other growing areas include financial well-being (19%), general fitness (18%), and male mental health (17%).
Sickness Absence Crisis
An astonishing 3,000 people per day are being signed off as too sick to work, with mental health and musculoskeletal issues being the main reasons. This creates high costs for employers in both absence and replacement.
Strategic Challenges
Rising benefit costs are the top issue (64%) influencing UK employers' benefit strategies in 2025, up from 57% in 2023. To address this, 57% plan to reallocate spend in the next three years, while 67% are looking to expand benefit choice.
Employers are facing soaring PMI costs due to medical inflation and increased NHS wait times. A key issue is that employees aren't being properly signposted to prepaid benefits such as Employee Assistance Programmes (EAPs), which could provide free counselling sessions instead of triggering PMI claims.
AI-Powered Benefits Platforms
AI technology is emerging to help employees navigate benefits more effectively and to provide employers with predictive insights about potential health issues before they escalate, enabling preventative interventions.
Compliance & Legislative Changes
EU Pay Transparency Directive Impact
Although the UK left the EU, many UK businesses will be impacted by this directive, which requires organisations to close gaps not just in pay but also in employee benefits. This necessitates total reward statements that quantify the value of all benefits provided.
Key Takeaways for SMEs
For smaller businesses, the main opportunities lie in implementing salary sacrifice schemes to offset rising NI costs, prioritising mental health and wellbeing support to reduce sickness absence. The use of digital benefits platforms to automate administration and provide better employee communication about available support. With absences particularly impactful for SMEs, the focus should be on preventative health measures and ensuring employees know how to access existing benefits effectively, rather than necessarily adding expensive new offerings.
Our team can provide a benefits audit for your business to check you have in place the most cost-effective and tax-efficient arrangements in place for your employees and your business. Start the new year in the right direction with our support.
More reports and background on the information in this article can be found in Employee Benefits UK website here.