In the Autumn statement last year, Chancellor Rachel Reeves proposed a National Insurance increase of 1.2%, bringing National Insurance up to 15%, its second highest in recent years. To compound things further, Reeves also reduced the threshold at which employers will need to start paying National Insurance on an employee’s earnings. This is now £5000, where previously it was £9100.
While Reeves’ objectives are to plug the £25bn black hole that the previous conservative Government left and funnel money into the NHS, it is yet another blow to struggling SMEs, many of which still haven’t financially recovered from Covid. It directly affects their ability to hire, retain top talent and maintain competitive compensation.
While things are tough for businesses, there are thankfully ways to lighten the load.
Salary sacrificing
Salary sacrificing comes in many different forms helping employers and employees alike. There are currently five options available to SMEs: pension, electrical goods, cycle to work, cars and groceries.
Pension salary sacrifice is a tax-efficient arrangement between an employer and employee in which the employee agrees to give up part of their gross salary, and in return, the employer contributes the equivalent amount directly into the employee’s pension scheme. This reduces the employee’s taxable income and National Insurance contributions (NICs), while the employer also saves on NICs. This approach will increase the employees net pay and potentially boost retirement savings.
Enabling employees to purchase electrical goods via salary sacrifice is another great way reduce a company’s National Insurance liability. Furthermore, it offers peace of mind to staff if an appliance breaks at home and they need to replace it quickly.
With many businesses and individuals becoming more conscious of their carbon footprint, many are turning to other forms of transport that are less polluting. A £1000 bike package may cost just £510 after tax savings – up to 49% in total savings.
The above salary sacrifice options can be used as a tool to limit costs in this year’s salary negotiations.
Pension review and switch
A thorough review can identify outdated plan features, uncover opportunities and align the scheme with current workforce needs.
Additionally, it helps mitigate financial risks, ensures competitive retirement offerings to attract and retain talent, and provides clarity for employees about their future financial security.
By proactively assessing the pension scheme, businesses can adapt to market changes and demonstrate a commitment to their employees’ long-term wellbeing.
Perks and discounts
The cost-of-living crisis continues to strain many households worldwide, driven by soaring inflation, rising energy prices, and stagnant wages.
Given this crisis, employers can offer employees access to discounts of 3-5% on some everyday expenses. That equates to £450 to £750 in annual savings, or even more than £1000 for larger households or premium spenders, relieving financial pressure and helping stretch incomes further.
These savings can cover weeks of groceries, school supplies, or family outings, making a tangible difference. This can be used as a tool to limit costs in this year’s salary negotiations.
IT investment
We are in a time where automation and efficiency are a signal of success. Artificial iontelligence (AI) has become a ubiquitous term in recent years. We are now at a point where AI-powered tools can handle data entry, document processing and email management, while virtual assistants schedule meetings and prioritize workflows.
By removing repetitive and time-consuming tasks, AI allows existing employees to focus on higher-value work, enabling businesses to scale productivity without expanding headcount.
Skills and training
Government funding can often be identified not only for apprenticeship training but also to enhance the skills of an existing workforce supporting both their personal development and enhancing the contribution to the wider business.
These schemes are typically match-funded or fully funded and can be used as a tool to limit costs in this year’s salary negotiations.
Outsourcing
Outsourcing can be a strategic move for businesses looking to improve efficiency, reduce costs and focus on their core competencies.
By outsourcing non-core functions such as customer support, IT services or accounting, businesses can access specialised expertise and technologies without the need for substantial in-house investment. This allows companies to streamline operations, reduce overhead costs, and scale more effectively.
Additionally, outsourcing can provide businesses with flexibility and agility, enabling them to quickly adapt to changing market demands without the long-term commitments of hiring full-time staff.
Navigating the challenge
The rise in National Insurance contributions presents a significant challenge for SMEs, but businesses can take proactive steps to mitigate the impact. By implementing strategies such as salary sacrifice schemes, optimising pension plans, and leveraging government-funded training, companies can reduce costs while supporting their employees. Additionally, embracing automation and outsourcing non-core functions can drive efficiency and long-term savings.
These measures not only ease financial pressure but also enhance employee satisfaction and retention— – key factors in maintaining a competitive edge. With careful planning and strategic adjustments, SMEs can navigate these changes effectively and position themselves for sustainable growth.
Adaptability and innovation are essential in responding to fiscal changes. Businesses that act now can turn a challenge into an opportunity for greater resilience and success.
Paul Foley is the Managing Director of EB Now.
To discuss mitigating your National Insurance liability contact EB Now on 0208 044 5357 or email [email protected]
