A five-point guide to mitigating employer National Insurance hike
Businesses concerned about the new 15% employers’ national insurance contributions (NIC) rate have until 6 April to reduce the impact by embracing non-salary alternatives that reduce costs whilst continuing to provide employees with attractive remuneration packages.
According to a report last year by the Confederation of British Industry (CBI), the higher 15% employers’ NIC rate (up from 13.8%) will cost British businesses in the region of £25bn next year, whilst a survey by the Bank of England also warned that around 54% of businesses are planning to cut jobs.
To help businesses reduce the impact of the new NIC rate, we have identified a five-point non-salary plan that employers can use to contain costs and boost recruitment and retention.
As these alternatives can reduce costs and enhance employee experience, businesses can continue to invest in staff recruitment, retention, training and wellbeing. Providing a range of salary alternatives can also free up cash flow that can be used for investment in innovation, marketing and customer relations.
Our ‘five-point guide’ includes options that are simple to implement, such as annual functions, through to more complex choices such as workplace nursery facilities.
Tax planning – review current policies and processes to implement tax and NIC saving mechanisms
- Implementation of salary sacrifice schemes for pensions, electric vehicles, cycle to work and purchase of additional annual leave
- Review benefits and expenses policies to maximise tax efficiency (in particular company vehicle policies)
- Introduction of a tronc scheme resulting in NIC savings (common pay arrangement for payment of staff tips in the hospitality industry)
Utilising tax reliefs and exemptions – consider any ‘tax-free’ options available to incentivise staff
- Trivial benefits exemption, annual functions exemption, canteen exemption, workplace nursery exemption
- NIC reclaims on employee mileage payments
Employer provision of discounted non-cash benefits and rewards – any tax is due based on the discounted rate
- Experiential trips (tickets, weekend away)
- Educational or wellbeing events
- Gift cards, mobile phone, gym membership
HR, personnel and hiring – changes to hiring strategies can reduce cost
- Employ apprentices
- Consider job sharing and flexible working
- Employ armed forces veterans
- Ensuring conditions met to qualify for advantages of hiring within Freeport zones
- Outsource non-essential services (must consider employment status/IR35)
Employee incentive schemes – these can act as a great incentive and engagement tool
- Enterprise Management Incentive (EMI) schemes – tax-efficient share option scheme designed for use by start-up or growing, higher-risk trading companies
- Company share option plan (CSOP) – tax-efficient share option scheme where employees are granted options to acquire shares in their employer where any gain on the exercise of options is income tax and NIC free
- Share incentive plan (SIP) – where all the relevant conditions are met, and the shares are held in the SIP trust for 3-5 years (depending on the type of award), no income tax arises on the shares, and no capital gain arises while the shares are held in the SIP trust
- Implement other “unapproved” employee share schemes – different share schemes have different tax implications but as value can be linked to future growth of business.
The 15% rate of employers’ NIC is already having a profound impact on the UK’s businesses with many rushing to find ways of cutting costs, reducing staffing and halting investment. It is important that business owners are aware that there are plenty of options available that allow them to motivate employees and future-proof the business. By taking a creative and strategic approach to remuneration and incentive strategies, most businesses should be able to support staff recruitment and retention whilst also cutting costs. It is a complex area, however, and we would encourage businesses wanting to explore these alternatives to take professional advice.
We are here to help
If you have any concerns about the National Insurance increase for employers and how to manage the impact on your business, please get in touch with a member of our specialist team or your usual Azets advisor.
Information correct at time of publishing, but may be subject to change in future. This article is for general information only and is not intended to be advice to any specific person. You are recommended to seek professional advice before taking or refraining from taking action on the basis of the contents of this article.