Chancellor Rachel Reeves has announced an increase in employers' National Insurance contributions and has also lowered the threshold for when employers start paying the tax.
Reeves announced a raise in National Insurance Contribution rate for employers by 1.2% from 13.8% to 15% and has also lowered the threshold at which employers start paying the tax from £9,100 to 5,000 a year - with the two measures combined expected to raise around £25 billion per year.
Employers currently pay a rate of 13.8% for workers earning more than £175 a week or £9,100 a year. Raising the rate by 1p would raise around £8.5 billion for the Treasury.
The rate increase has been combined with a cut to the £9,100 threshold.
Small businesses could be partially protected by increased allowances. Employers with NIC bills of £100,000 or less receive an allowance on the first £5,000, which is expected to rise to £6,000.
There was speculation that the government would introduce a National Insurance charge on employers' pensions contributions, however the impact on the public sector was widely considered as politically risky.
Julia Turney, partner at Barnett Waddingham, commented: “There is an overall concern about the potential impact of rising employer costs, as employees might ultimately bear the consequences. Many employers currently use the savings they receive from National Insurance relief on pension contributions, and those made through salary sacrifice arrangements, to boost pension contributions or fund additional benefits like healthcare and life assurance. If these savings disappear, many employers could make the difficult decision to reduce or cut these benefits altogether. This is especially worrying when it comes to healthcare benefits, such as private medical insurance, as employees could be left to pick up the pieces."
Gary Smith, partner in financial planning and retirement specialist at Evelyn Partners, said: "This NIC rise could be a significant cost to employers, and possibly have a knock-on effect on hiring and remuneration plans. But employers will also review their benefit offering to ensure that they are getting value-for-money in light of this potential increase to overall costs. Notably, an opportunity may arise for employers to offset some of this cost through the use of a salary sacrifice pension scheme, including bonus sacrifice, where that’s not already in place.
"An employer NI increase would make pension schemes operating on a salary sacrifice basis more attractive to employers – which could mean more employees end up benefitting from them. While on the other, that does raise the risk of the Budget also including a crackdown on salary sacrifice.
"They can help employees increase their take-home pay and help employers lower their National Insurance contributions. However, despite the financial benefits to both the employer and employee, many organisations still do not operate a salary sacrifice arrangement. If the Chancellor increases employer NICs, these employers could look towards salary sacrifice pension schemes to reduce costs."
