FOR EMPLOYERS: Increases to National Insurance rates

Rob Marshall

Published on:

September 13, 2021

How you can offset the new 2022 increases using salary sacrifice

The government announced this week an increase to both employer and employee contribution rates to fund additional NHS and Social Care initiatives. From 6 April 2022, the Class 1A rate for employers will rise to 15.05% and rates for employees will rise to 13.25% main rate/3.25% higher rate. As well as employee earnings, these increases also impact dividend payments.

Obviously, these increases will put additional financial pressure on you and your employees.  However, there is a way however to help offset these increases – utilising salary sacrifice.

How does it work

Salary sacrifice falls under employment law, not tax law, and is treated as a variation of an employee’s contract.  It is recognised by HMRC as a valid method to fund employee pension contributions and selected workplace benefits.

For pensions, the arrangement works by the employee agreeing to reduce pay by an amount equal to the pension contribution they would normally make, and in exchange, the employer makes an additional pension contribution of equal value, increasing employee take home pay and saving employers the NIC element of the salary amount sacrificed. For cycles to work, your business funds a bicycle/cycling equipment, and the cost is reclaimed over a set period.  

In both of the examples above, both you as the employer and the employee do not pay NIC on the amount of salary sacrificed. There are other benefits – such as salary sacrifice ULEV’s and tech devices, that save only employees NIC at their marginal rate – so they still offer cost savings to your people.

So what are the potential savings?

For an individual earning £25,000, contributing 5% of their pay into the pension scheme, the employer NIC saving would amount to £179 per year. For a workforce of 25 employees, your annual employer saving could be at least £4,300.  For further information about the changes coming in April 2022 click here.

All sounds great – but how do you implement salary sacrifice and utilise the NIC savings?

Recommended approach

About us

At WorkLife by OpenMoney, we can implement, launch, and manage a number of salary sacrifice benefits – such as tech devices and cycles to work, and more benefits are on the way. Our benefits platform can also display the salary sacrifice calculations and how they benefit your employees via the live total reward statement and benefits hub.

If you’d like to find out more, please contact the WorkLife team at enquiries@worklifebenefits.uk

Download our brochure to learn more about WorkLife and our benefits.

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