Chancellor of the Exchequer George Osborne revealed the change, called the Employment Allowance, in what is seen as the largest tax cut in the budget.
The cut will make it easier for smaller businesses to employ new people and Osborne confirmed that, once the change takes effect next April, a third of employers will not have to pay NI.
Osborne said: "For the person who has set up their own business and is thinking about taking on their first employee, a huge barrier will be removed."
Helen Dickinson, director general of British Retail Consortium (BRC), welcomed the change and said: "We called for a time-limited national insurance holiday, as an easy way to encourage businesses to take on young unemployed people. Existing incentives are cumbersome and not being taken up.
"The Employment Allowance will help many small businesses with the cost of taking on staff. But it won’t incentivise larger businesses, which also have a vital role in creating jobs," she added.
NI payments go towards benefits such as state pension.
Richard Stevenson from the National Federation of Meat and Food Traders (NFMFT) said: "It looks great as a headline and I’d like to welcome it because it looks good, but we will have to see how it works out in practice."
Commenting on what it will mean for the members of NFMFT, Stevenson said: "It will be beneficial, but it’s difficult to say to what degree at the moment."
The economics spokesperson for Scottish Federation of Meat Traders Association (SFMTA), Alex Christie of Christie Meats, said the change will make a substantial difference to small butchers.
Christie explained: "I would estimate that, for any member with one butcher and one trainee, they will pay no national insurance (other than their own). Whether it encourages employment starts is another thing – and that’s what the Chancellor is really looking for."
Christie further added that the effect will still vary from business to business and said it was "difficult to make too many generalisations".