Mitigating the rising cost of Employer National Insurance (“NIC”)

As announced in the recent Budget, the rate of employer NIC will increase from 13.8% to 15% from 6 April 2025, and the point at which employers become liable to pay NIC on an individual employee’s earnings will reduce from £9,100 to £5,000 a year, resulting in an increased cost of £615 per employee.

The Government estimates that nearly 1million employers will see their NIC costs increase in consequence of these changes.

What can my business do?

Now is the time for businesses to consider whether a Salary Sacrifice arrangement could deliver core employee benefits efficiently or expand to include more benefits – to maximise value, deliver employee experience, align to market while mitigating rising costs.

Salary Sacrifice

A salary sacrifice is an agreement between an employer and employee where the employee agrees to a reduction in their salary in return for an employer benefit, for example:

• Employer pension contributions
• Cycle to Work scheme
• Additional Annual Leave
• Qualifying Workplace Nursery
• Electric Vehicle

When implemented correctly, a salary sacrifice will result in a NIC saving for both the employee and employer and can also deliver income tax efficiencies for employees.

Salary sacrifice arrangements must be structured correctly, having appropriate controls and supporting processes, with professional advice taken to cover the detail - meaning business can get on with business.

How we can help

We can advise on employee benefits in kind and salary sacrifice. For example, we have hands on experience in:

• Feasibility and employee eligibility reviews, including NMW considerations
• Modelling NIC savings
• Operational readiness, controls and change management
• Policy reviews and design
• Advising on varying employee’s terms & conditions of employment for income tax and NIC purposes
• Employee consultations and communications
• Payroll “inputs” and “output” reporting, including the interaction with automatic enrolment for pension
• Recognising things change, and helping clients navigate the operation of salary sacrifice, and employee benefits in kind day to day, including alignment with Payrolling of Benefits

Why Choose Us

Our growing Employment Tax team have comprehensive experience in employee benefits and salary sacrifice, having implemented extensive and varying arrangements, in addition to reviewing existing client salary sacrifice arrangements for operational effectiveness. We have the expertise and knowledge needed to guide you through the process, ensuring that you get the most out of your reward and retention strategy.

Contact our Employment Tax team today to learn more about how we can help you, your employees, and your business maximise potential.

Source: 'Changes to the Class 1 National Insurance Contributions Secondary Threshold, the Secondary Class 1 National Insurance contributions rate, and the Employment Allowance from 6 April 2025'