Strategies to manage rises in employer National Insurance Contributions
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Q What recent change has been made to employer National Insurance Contributions (NICs)?
A As of April, employer NIC rates have risen from 13.8 per cent to15 per cent, and the earnings threshold has been reduced from £9,100 to £5,000. This change alone adds £615 per employee per year in NIC costs before even accounting for the rate rise.
Q Why is this significant for employers?
A It’s a substantial increase in operating costs in a time of financial instability. Employers must now look at strategic ways to manage and reduce these additional expenses.
Q Is there a way employers can mitigate these increased NIC costs?
A Yes. Pension salary exchange – also known as salary sacrifice – remains one of the most effective tools to offset these rising costs. It can deliver real savings for employers, while also benefiting employees by boosting their pension contributions.
Q Isn’t salary exchange an old concept?
A True, many employers may feel they’ve heard it all before. But, surprisingly, recent surveys by Workplace Pensions Direct and YouGov reveal that around 50 per cent of UK businesses still haven’t adopted it.
Q What kind of savings can employers expect from salary exchange?
A A survey by Royal London* found that an employer with 100 staff could reduce their NIC costs by £14,600, even if they redirect 50 per cent of those savings back to employee pensions. That’s an extra £340 in pension contributions per employee per year.
Q Are the savings the same for all businesses?
A No, the potential savings depend on workforce size, salary levels, and pension contribution rates. However, businesses of all sizes stand to benefit.
Q Is it complicated to implement salary exchange?
A Conceptually, it’s straightforward, but in practice correct implementation is crucial to meet HMRC requirements. This includes updates to employment contracts, payroll systems, and clear employee communications. That’s why it’s advisable to engage a corporate pension consultant for guidance.
Q What should an employer do if they haven’t yet implemented salary exchange?AIf your company is among the 50 per cent not using this strategy, now is the time to act. With NIC costs rising, introducing salary exchange could make a real difference to your firm’s bottom line.*