A cross-party group of MPs has urged the government to remove employer National Insurance contributions for all workers under 25, arguing that rising employment costs are shutting younger people out of entry-level jobs. For small employers, the proposal is worth watching—but it is not yet a change to the rules.
What MPs have proposed
The House of Commons Work and Pensions Committee has recommended extending the existing employer National Insurance relief so it covers every employee under 25. At present, employers generally pay no secondary Class 1 National Insurance for workers under 21, or apprentices under 25, on earnings below the upper secondary threshold of £50,270 a year.
For non-apprentices aged 21 to 24, the normal employer rate applies above the standard secondary threshold. The committee says that gap works against efforts to improve employment among young adults.
Its recommendation comes after the employer National Insurance rate rose from 13.8% to 15% in April 2025, while the annual threshold at which employers start paying fell from £9,100 to £5,000. The Employment Allowance increased at the same time, from £5,000 to £10,500, cushioning the impact for many smaller businesses.
The committee says it heard “overwhelming evidence” that higher employment costs have reduced vacancies and training opportunities. Retail and hospitality businesses were highlighted because they employ large numbers of younger workers and often operate with tight margins.
Why this matters to small employers
A broader under-25 relief could materially reduce the cost of recruiting a 21-to-24-year-old. As a simple illustration, an employee earning £24,000 currently creates an employer National Insurance charge on earnings above the £5,000 threshold, before any Employment Allowance is applied. At 15%, that is £2,850 a year.
The real saving would depend on the final policy design, the employee’s pay and whether the business already uses its Employment Allowance. A firm whose allowance already covers its full employer National Insurance bill might see no immediate cash saving, while an employer with a larger payroll could benefit more directly.
The recommendation could also change the relative cost of apprentices and other young recruits. Employers already receive National Insurance relief for qualifying apprentices under 25. Extending it to all workers in the age group could make ordinary entry-level roles more affordable, although it might reduce one of the tax advantages attached specifically to apprenticeships.
No tax change has been announced
Businesses should not alter payroll calculations or hiring budgets on the assumption that the proposal will happen. Select committees scrutinise government policy and make recommendations, but they do not set tax rates. The government has said it is determined to create opportunities for young people, but it has not committed to the National Insurance change.
The committee linked its proposal to the fact that more than one million people aged 16 to 24 are not in education, employment or training. It also called for a more coherent youth employment strategy, arguing that employment, benefits and training policies can pull in different directions.
There is no single agreed cause of the rise in young people outside work and education. Evidence considered in the wider debate includes health problems, the effects of the pandemic and a decline in entry-level roles. The Institute for Fiscal Studies has also cautioned that there is no clear evidence that higher minimum wages have been a major driver.
What SMEs can do now
Small employers considering a young recruit can take several practical steps without waiting for government action:
- Check whether the current under-21 or apprentice under-25 National Insurance relief applies to the role.
- Confirm whether the business is eligible for Employment Allowance and how much of it remains available.
- Model the full employment cost, including pay, pension contributions, National Insurance, training and supervision.
- Keep recruitment decisions based on the role and candidate rather than assuming a future tax saving.
- Watch for a formal government response, Budget announcement or HMRC guidance before changing payroll treatment.
For labour-intensive SMEs, especially in retail, hospitality and local services, the proposal could become a useful hiring incentive. For now, it is best treated as a policy signal rather than money already available.
