Reducing National Insurance payments: Why salary sacrifice still comes out on top


The new Health and Social Care Levy is the latest consideration for employers already redesigning their business operations for post-COVID living.

While the legislation change will put extra pressure on stretched budgets, there are opportunities to build employee benefits packages that work harder for everyone in the new world.

Since the UK government announced the Health and Social Care Levy on 7th September [2021], employers and employees have been considering how the changes will affect them.

A temporary increase in National Insurance Contributions (NICs) and dividend tax rates is planned for the financial year 2022/23, with the Levy itself taking effect as of April 2022.

The net effect of the changes – as the legislation intends – is that organisations and individuals will pay more money to the government. However, there are still opportunities for savings at the level of National Insurance (NI). Some employee benefits will even work harder once the new legislation comes in.

The value of salary sacrifice

By giving up some of their salary in exchange for certain benefits, employees pay NICs on a lower amount, ultimately reducing what they pay. With the default contributions set to increase, the potential savings available through salary sacrifice schemes are set to increase too. Salary sacrifice could prove a valuable way for employers to reduce their own costs, while helping employees manage their additional financial load.

As accountancy and business advisory service, UNW, has highlighted in response to the Levy being announced: “Salary sacrifice arrangements in relation to pension contributions and other government approved benefits will become more attractive, especially since they can give savings in both employer and employee National Insurance contributions.”

Salary sacrifice schemes already come with a certain amount of prestige. It’s a mechanism that’s designed for long-term arrangements and benefits that will make a substantial difference. They’re a demonstrable commitment to employees, making them a powerful tool in attracting and retaining the best talent.

With so much variety out there, employers will be able to find the schemes that deliver what people are asking for from their benefits right now, while also reducing the NICs that they and their employees need to pay.

Here are three research-based priorities for you to consider when updating your employee benefits portfolio:

Salary sacrifice and wellbeing

Employers offering discounted gym membership as their sole bid to promote staff wellbeing are falling short of the mark. The clear trend is towards a wider definition of wellbeing – one that includes physical, mental and financial aspects.

In our research, 30% of employees think an increased focus on financial wellbeing is the area of rewards and benefits that most needs to change post-covid. Only 44% think their reward and benefit options are still relevant. 72% of respondents say it is very important that an employee benefit has a positive impact on mental wellbeing.

By offering benefits that contribute to the overall wellbeing of their staff, employers can make a sustainable and sustained commitment to happier, healthier and more productive employees.

With 38% of employees wanting rewards and benefits to have an increased focus on promoting a good work-life balance, benefits like Techscheme can support both mental and financial wellbeing. When asked to pick the benefits they’d like to have access to, 26% said a scheme that allows you to spread the cost of the latest tech would be one of their top three choices.

The power of technology to reduce time spent on chores, improve the quality of entertainment experiences or help make our homes more energy efficient has taken on fresh importance as many of us have switched to spending a lot more time at home.

Greener living and working

In an Anthesis survey of UK residents in February 2021, over half (53%) highlighted sustainability as a key factor when deciding which company to work for. While employers need to tackle sustainability in the round, offering a benefit like Cyclescheme can play an important role. Making cycling equipment more affordable to encourage more people to cycle to work can lower the organisation’s carbon footprint while reducing NIC payments. Those same benefits are passed on to employees too, along with a boost to mental and physical health.

If your company further encourages cycling through facilities like showers and specialist bike parking, you could also apply to be recognised as a ‘Cycle Friendly Employer.’ Certifications like this give you a helpful shorthand for your culture when communicating with prospective and existing employees.

A new brand of choice

Research from employee insurance, annuities and benefits provider, MetLife UK, shows that 74% of employees want benefits that meet their individual needs, with 50% saying they would sacrifice more of their basic salary in exchange for a personalised benefits package. This willingness to swap salary for access to the right benefits is more evidence of salary sacrifice’s potential.   

Plus, with more people working from home more of the time, existing workplace perks like free fruit or yoga classes are likely to become less important as people simply won’t have as many opportunities to take advantage of them.

In our latest research, only 9% of employees viewed in-workplace perks like free fruit and gym sessions as a top-three benefit. 26% think there needs to be an increased choice of rewards and benefits in light of the pandemic, specifically.

One way of offering this choice is with a prepaid card that offsets any tax and NI increase by helping your workforce save money elsewhere. In our research, prepaid cards were the joint top pick for employees, with 40% of people putting them in their top three benefit choices. This makes them as popular as private healthcare.

bYond is a prepaid card that earns employees up to 15% cashback every time they use it to pay at any of the partner retailers. The key here is the diversity in the brands. With a list spanning food and drink, home and garden, plus sport and leisure categories, everyone gets a chance to benefit from both everyday and special occasion spending. The card also captures a mix of online and in-store spending, recognising the fluidity in how people shop.

As employers and employees continue to unpack the impact of the latest tax and NI legislation, HR professionals can be heartened by the potential to attract, engage and retain the best talent. As ever, effective use of the right benefits can help employees feel how much you value them, while also relieving financial pressure.

Complete the contact form to your right if you’d like to have a conversation about bringing in an employee benefit that could save you money and support your employees.

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