In the UK’s recent Autumn Budget, Chancellor Rachel Reeves outlined key measures including a rise in Employer National Insurance contributions (NICs) and a lowered NIC threshold.
These measure may have potential indirect effects on employees, such as restrained salary growth, reduced recruitment, and potential restructuring in pension contribution strategies. These measures make salary sacrifice schemes an increasingly attractive option for businesses managing increased operational costs.
Salary sacrifice is a government-supported scheme aimed at helping employers and their staff reduce tax obligations. In this arrangement, an employee agrees with their employer to forgo a portion of their salary – reducing NICs for both employee and employer – in return for non-cash benefits. Among the most common benefits are contributions to pensions, where employees can divert part of their salary towards their pension, or childcare vouchers.
According to Andrew Timpson, employment tax partner at RSM UK, “Notwithstanding the negatives, the positive is employees and employers continue to benefit from NIC savings through pension salary sacrifice arrangements, as the mooted employers’ NIC charge on pension contributions has not materialised. Any businesses that are still procrastinating on implementing a pension salary sacrifice arrangement should look to put them in place as soon as possible to benefit from the increased NIC savings.”
Offsetting Costs with Salary Sacrifice
Glenn Thomas, CEO & Global Practice Leader – Howden Employee Benefits, is urging SMEs to consider this option.
He said, “With 5.6 million small businesses employing 16.7 million employees in the UK, SMEs are the backbone of our national economy. The budget presents a golden opportunity for these businesses to maximise tax efficiencies and rethink their pension and wider remuneration strategies.
“As advisers to thousands of UK SMEs, we’re encouraging clients to address the Chancellor’s Employer National Insurance hike by considering salary exchange if they haven’t already.While SMEs face higher Employer National Insurance (NIC) contributions and increased tax bills, they can address both these challenges and address the UK’s retirement shortfall.
“By implementing salary sacrifice, employers can save 15% on Employer NICs on employees’ pension contributions, helping offset some additional costs whilst making a positive contribution to their employee’s retirement outcomes.”
Alessandra Pacelli is a journalist and author covering human resources and employment topics. She contributes regularly to HRreview, where she reports on labour market trends, employment costs, flexible working policies, HR wellbeing, and AI adoption in HR. Her work focuses on analysing industry research and policy insights relevant to HR professionals and organisational leaders.
- Alessandra Pacelli
- Alessandra Pacelli
- Alessandra Pacelli
- Alessandra Pacelli
