The Labour government’s recent Autumn Budget has introduced significant changes to National Insurance Contributions (NICs) for employers, effective in the coming fiscal year. These changes include:
- Increase in NIC Rate: Rising from 13.8% to 15%, representing a notable hike in employment costs.
- Reduction in NIC Threshold: The earnings level at which employers begin paying NICs will drop from £9,100 to £5,000, broadening the range of earnings subject to NICs.
These measures are expected to increase payroll costs, particularly for businesses relying on large workforces or industries employing lower-wage workers.
Leveraging Salary Sacrifice to Offset Costs
One effective strategy for mitigating these changes is the use of Salary Sacrifice Schemes. By enabling employees to exchange part of their gross salary for non-cash benefits (such as pension contributions, childcare vouchers, or electric vehicle schemes), employers can reduce the amount of earnings subject to NICs. This reduction benefits both the employee and employer by:
- Lowering the employee’s gross taxable income, reducing their NIC and income tax liability.
- Reducing the employer’s NIC liability on the adjusted salary.
Risks Associated with Salary Sacrifice
While salary sacrifice schemes offer clear advantages, they come with critical risks—especially for industries employing low-paid labour. The most pressing risk is the potential breach of National Minimum Wage (NMW) regulations.
- Key Regulation: An employee’s adjusted salary, after salary sacrifice deductions, must not fall below the NMW. If this happens, the employer may face penalties, reputational damage, and legal action.
- Industries at Risk: Employers in sectors such as retail, hospitality, and care services, where wages are close to the NMW, must exercise extra caution when implementing salary sacrifice arrangements.
Best Practices for Using Salary Sacrifice
To maximise the benefits of salary sacrifice while minimising risks, businesses should:
- Conduct Regular Audits
- Regularly review payroll to ensure that all employees participating in salary sacrifice schemes meet the NMW requirements.
- Communicate Clearly
- Educate employees about how salary sacrifice affects their take-home pay, benefits, and compliance with NMW laws.
- Have a trustful payroll provider who can guarantee your business can do the best use of Salary Sacrifice schemes without fear of breaching National Minimum Wage (NMW) regulations. At Zaypay we will make sure you to give you the correct advise to help you tackle the costs and keep compliant.
Conclusion
The Autumn Budget’s changes to NICs present challenges for employers, but strategies like salary sacrifice can help reduce costs if implemented thoughtfully. By staying vigilant about compliance, particularly with NMW regulations, businesses can manage these changes effectively while maintaining legal and ethical standards.
