30 October 2024
If you are covering the budget and the increase employer National Insurance contributions, please see the following comment from Jon Greer, head of retirement policy at Quilter:
"The Chancellor’s announcement of a 1.2% increase in Employers' National Insurance is designed to generate immediate revenues without directly increasing taxes on individual workers in theory. However, it represents a complex challenge for businesses as they grapple with higher payroll costs. It’s also a technical change that many people won’t have a full understanding of so will not cause the kind of furore that upping income tax might have.
"However, calculations show given the secondary threshold has dropped dramatically to £5,000 if an employee’s gross pay is £30,000 then an employer will see a £865.80 increase in their National Insurance costs for that employee. The total cost to employ someone on £30,000 will now be £33,750 compared to £32,884.20 under the previous rules. If a business wanted to keep their cost to that latter number than an employee’s gross salary would have to drop to £29,247.
"For many employers, particularly those operating on tight margins, this increase in NI is likely to prompt a re-evaluation of salary structures and potential pay rises. Salary sacrifice schemes where employees voluntarily reduce their taxable income in exchange for benefits like additional pension contributions or even cars or bicycles could become increasingly attractive. By leveraging these schemes, employers can reduce their NI liability while providing employees with enhanced retirement savings, making them an appealing option in an environment of rising costs. This therefore might turbo charge businesses application of these types of schemes.
"However, there’s a risk that businesses may choose to retain some of the NI savings from these schemes rather than passing the full benefit onto employees. This could lead to a situation where the intended boost to employee retirement savings is partially offset by employers managing their own cost burdens. Meanwhile, for those businesses that don’t adopt such schemes, the increased costs could dampen wage growth and limit hiring, with a knock-on effect on household incomes."
