The recent 15% increase in Employer National Insurance (NI) contributions has sent ripples through the construction industry. While the change may seem minor at first glance, its cumulative effect on project margins can be significant—especially if not monitored and managed in real time.

Understanding Employer NI

Employer NI is a mandatory contribution that businesses must pay on behalf of their employees. It covers social security benefits and is calculated as a percentage of employee earnings. With the recent increase, construction businesses are seeing higher labour costs, which directly impact profitability.

Real-World Impact on Construction Projects

Consider a construction firm with 20 employees, each earning £35,000 annually. A 15% increase in Employer NI could mean an additional £105,000 in annual costs. If these costs are not factored into project pricing, the firm may face reduced margins or even losses.

Example:

A project budgeted with a 20% profit margin may end up with only 10% if Employer NI is not accurately accounted for. This can jeopardise cash flow and long-term sustainability.

Steps to Take Control

To mitigate the impact of the Employer NI increase, construction businesses must adopt a proactive approach to job costing and financial management. Here are key steps:

Calculate the real labour cost, including Employer NI, pension, holiday pay, and non-labour hours.
Monitor overtime and double time—these can quietly erode profits.
Review project pricing for labour—ensure you include time contingencies.
Calculate gross profit margin on each project.
Implement a process to allocate all costs to each project.
Control project progress in real time—don’t wait for month-end reports.

Tip:

Use job costing software to track labour and material costs in real time. This helps identify issues early and adjust budgets accordingly.

Why Real-Time Monitoring Matters

Waiting until year-end to assess financial performance is too late. By then, the damage is done. Real-time monitoring allows businesses to make informed decisions, adjust pricing, and control costs before they spiral out of control.

Year-End Accounts vs. Operational Efficiency

Year-end accounts are essential for compliance, but they do not help in running a business efficiently. Operational decisions must be based on current data, not historical summaries.

Reminder:

Acting late is like not acting at all. Stay ahead by implementing real-time controls and reviewing project margins regularly.

Conclusion

The Employer NI increase is a wake-up call for construction businesses to tighten their financial controls. By understanding the true cost of labour and implementing robust job costing practices, firms can protect their margins and ensure long-term success.

How is your business tackling this challenge? Share your thoughts and strategies.