Nearly half of mid-market businesses are exploring how salary sacrifice could help them counter the hit of employer national insurance tax rises, a survey has found.
Research with 500 mid-market businesses found that salary sacrifice schemes were the most popular option for employers (47 percent) looking to mitigate cost increases, while more than two fifths (44 percent) said they would look to outsource or offshore work.
The survey, from BDO, also showed that 24 percent of businesses said they were considering reducing or scrapping planned pay increases or bonuses and 21 percent would cut recruitment.
Almost all (95 percent) respondents said they would take at least one action to cope with imminent NI rises.
Caroline Harwood, head of employment tax at BDO said: “The increases to employer’s NI announced at the budget and the accompanying drop in the threshold at which NI applies to employee earnings came as a shock to many businesses. Unsurprisingly, the vast majority have been urgently exploring ways to mitigate this imminent jump in their costs.
“There is no silver bullet, but clearly salary sacrifice schemes for things like pensions, private healthcare, electric vehicles or cycle to work schemes – which offer NI savings to both employers and employees – are top of mind for employers.”
She said that for businesses that don’t offer a pension salary sacrifice scheme, now would be a good time to start. “Those already operating such a scheme may seek to encourage employees, many of whom reduced their pension contributions during the pandemic, to consider the longer-term benefits of raising their contribution levels.”
Harwood said employers can help educate their employees on the benefits of salary sacrifice, particularly for employees earning close to the key earnings thresholds.
She said: “For example, employers could help parents earning just above the £60K and £100K thresholds to understand that using salary sacrifice schemes could help them bring down their net adjusted income and retain entitlements to child benefit or free childcare.
“Employers are also increasing the use of salary sacrifice schemes for EV. The Benefit in Kind charge and NI savings will depend on the model and its list price. However, with a low Benefit in Kind charge – 2 percent of the list price of the vehicle this year or 3 percent in 2025/26 – these schemes offer both employees and employers attractive savings.
She highlighted the findings that some businesses will be looking at cutting fixed costs by outsourcing or offshoring work, reducing hiring and suppressing pay increases.
However, she said “businesses must resist the temptation of cutting corners”, adding: “Any salary sacrifice schemes introduced must be watertight to avoid any risk of HMRC censure.
“Employers also need to pay particular attention to ensure that salary sacrifice arrangements don’t reduce an employee’s cash earnings below the national minimum wage as this could result in them being fined, named and shamed.”
