The UK’s Labour Government have announced their Autumn budget at the end of October, sparking anxiety in employers over rising National Insurance Contributions (NICs). But what does this really mean for employers – and how can your benefits help insulate your business against this new budget?
Let’s break it down.
Key changes outlined in the Autumn budget
Starting April 6, 2025, several significant changes to NICs will affect UK employers:
Increase in employers’ NICs: Employers’ NICs are rising from 13.8% to 15%. Additionally, the Class 1A and Class 1B NIC rates, which apply to taxable benefits-in-kind, will increase in line with this new rate.
Lower secondary threshold: The NIC threshold is dropping from £9,100 to £5,000 per year, meaning employers will now pay NICs on any salary over £5,000. This adjustment will increase NIC obligations for employers without altering employees' NICs, which will remain at 8%.
Increased employment allowance: To support smaller businesses, the Labour Government has increased the Employment Allowance from £5,000 to £10,500. Additionally, they have removed the £100,000 cap on the allowance, meaning even employers with annual NIC bills exceeding £100,000 are now eligible for this relief.
This NIC increase is expected to raise an estimated £25 billion annually. The goal is to bolster public spending in response to economic pressures, but it may potentially place new demands on employers, especially those already operating on tight budgets.
What this means for businesses
The changes to NICs will require employers to rethink their budgets, potentially impacting growth plans and hiring strategies. The higher NIC costs could lead some companies to consider hiring freezes or even layoffs, especially in sectors where profit margins are thin. As businesses assess the added financial strain, they may also look at benefits costs to determine where efficiencies can be made.
But benefits shouldn’t be the first thing to cut: benefits can increase productivity and reduce recruitment costs, which are all important metrics at a time when some employers may struggle.
So rather than cutting benefits, there are strategic options available to help employers make their benefits budget work harder while keeping costs under control.
How employers can cushion against National Insurance increase
Salary sacrifice is one way employers can help cushion the blow – while keeping a bit of extra cash in their employees pockets. And it doesn’t cost anything to you!
Salary sacrifice – how does it work?
Salary sacrifice is an agreement where the employee gives up part of their salary in exchange for non-cash benefits. The result? Lower National Insurance Contributions for both employers and employees; since the benefits are not subject to income tax or National Insurance contributions (NICs), employees’ taxable salary is reduced. And with the new budget announced, every bit counts.
One way many employers can quickly make use of salary sacrifice is by ensuring their pension schemes are set up with salary sacrifice. The savings could really add up:
Per employee earning £50,000 a year, employers would save £345 a year on NICs through a pension salary sacrifice scheme.
And while that might not seem like much at first glance, the savings multiply. A company with just 250 employees, for example, could save a whopping £86,250 annually.
Plus, salary sacrifice can be applied to more than just pensions; employers can save on NICs through all sorts of benefits, like:
- Cycle to work schemes
- Workplace nursery schemes
- Employee Assistance Programs (EAPs)
- Grocery schemes
- Electric vehicle schemes
But while salary sacrifice is one way to create a little breathing room, there are many other considerations that can help maximise your benefits budget, too.
Rethink your benefits strategy
Assessing your benefits strategy is vital in making sure your benefits are working wisely for your company’s budget. The last thing you want is to be spending extra money on benefits that are collecting dust on the shelf and going unused by your employees.
Great benefits directly contribute to increased productivity and key budget-saving metrics like reduced staff turnover and lower recruitment costs. Yet many companies still treat their benefits like a box-ticking exercise. This lack of focus doesn't just result in lower employee engagement, it also means wasted budget.
That's where Ben can help. Our expert team have years of experience helping companies redesign their benefits strategy to save money while increasing engagement.
If you:
- Aren’t sure if your benefits match what your employees really want
- Are looking for ways to slim down on your benefits spend
- Want to understand how your benefits stack up within your industry
- Need to cut down on hours wasted on manual benefits admin
…then we’d love to speak with you!
Reach out to us to chat about how Ben can help identify your benefits needs, so you can build a best-in-class benefits package – that helps save budget when you need it most.