How employers can navigate the rise in NI costs
The impact of the rise in employer National Insurance contributions (NIC) and the increase in minimum wage, outlined in Labour’s Autumn Budget, will no doubt frustrate businesses.
Labour’s first Budget in 14 years, delivered by Chancellor Rachel Reeves, revealed plans for UK employers to foot the bill for a huge tax increase, with the rate of NI paid by employers increasing by 1.2% to 15% overall.
Companies will have to pay an additional £770 in NICs for each minimum wage worker, or an extra £900 for each employee on median earnings, adding up quickly for businesses with large workforces.
Amid the frustration, employers will likely find the news hard to take, and will no doubt look for ways to mitigate this rise.
This will best be done through employee engagement, clear communication and salary sacrifice.
We look at why communication around salary sacrifice is vital to make informed decisions for your employees.
The impact on HR leaders
The spike in employer NI contributions may curb salary growth but HR leaders will increasingly look to take creative steps to unlock cost-effective approaches to reward employees beyond simply raising wages.
Employees are placing greater importance on financial support from their employer and aren’t afraid to switch jobs to get the perks that they want.
Research from Zest shows that half (47%) now say that a good benefits package is the most important thing they look for in employment.
Employers must ensure that they’re not only increasing investment in their benefits offering but also delivering enhanced value by implementing the support employees are calling for, all the while dealing with the latest NI increases.
Time to maximize salary sacrifice benefits
Salary sacrifice is an agreement to reduce your employee’s salary, often in exchange for the employer purchasing a benefit.
This means your employee has a lower gross salary on which to pay tax and NI. This is often treated as a negative payment on a payslip.
With this agreement, the benefit is deemed employer provided and must be reported to HMRC as a benefit-in-kind on a P11d (unless exempt).
Ultimately, it’s a selection that helps save NI contributions for both employee and employer, if the benefit is not liable to National Insurance.
It’s a solution perfect for the recent Government announcement, and benefits available through salary sacrifice include:
- Pensions
- Cycle to work schemes
- Electric car
- Childcare vouchers (existing scheme)
Communicating the value of your benefits scheme
Shortly before the budget was released, our research found that one in five (19%) businesses were unable to raise employee salaries in line with inflation, with consumers equally hit by cost-of-living pressures.
With employers facing this new cost, the need to communicate and educate around the fundamentals of employee benefits schemes is of vital importance.
Miscommunication is a major issue causing a disconnect between employers and employees, with just 50% of employees saying they know what their employer is offering, despite nearly nine in ten (87%) employers believing their benefits are communicated clearly and simply.
That is a major sticking point. In a challenging climate where budgets are expected to stretch further, this is an area for improvement.
By pointing employees towards salary sacrifice benefits, those selections can help employees and employers save money, with those actions ultimately leading towards the latter paying less in NI payments.
Benefits in kind are much more efficient than being paid the salary equivalent.
From that, companies will have a larger pot of funds to focus on other aspects, including pay rises, professional development funds and company perks.
To maximize the value of your employee benefit scheme, there are several ways you can handle these communications.
Without strong communication, employers cannot fully understand the demands of employee which can offer poor value for money for both employer and employee. In a challenging climate where budgets are expected to stretch further, this is an area for improvement.
Engaging with your employees
In today’s world, you’re required to do so much more than simply put your benefits online. In fact, almost six in ten (56%) of employees admit they are not using the benefits on offer to them.
The way you communicate to employees will help your salary sacrifice proposition, offering clarity and knowledge via personalised communications.
Maximizing your employee benefit technology
While engaging with your employees is important, utilizing the tools you have at your disposal is also key.
Zest’s blog on using insights to optimize your benefits strategy is ideal for employers looking to make the most of their scheme platform.
There is also the Zest Total Reward Solution (TRS) tool which helps employees understand the full value of their benefits package.
So, when it comes to combatting the NI rise, employers must maximize their employee engagement across the board, and use insights, and of course the latest trends, to tailor communications to employees.
That way employers can improve uptake in salary sacrifice benefits (saving everyone money), significantly improve ROI and, most importantly, put talent attraction and retention in a positive light.
The research in this blog came via Zest’s Employee Benefit Report for 2024.
In partnership with Zest
Zest is the next generation platform that’s reinventing the world of employee benefits.
