Autumn Budget Announcement: The Impact on Employee Benefits

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Autumn Budget Announcement: The Impact on Employee Benefits

After months of speculation and nervous anticipation, the Autumn Budget has finally been revealed. Among the various talking points, the rise in employer National Insurance (NI) stands out as particularly significant from an employee benefits perspective.

With a reported £22 billion black hole to fill, the Government had no choice but to implement tax rises. The question was where the money would come from. Rachel Reeves announced that her Budget would raise taxes by an eye-watering £40 billion. £25 billion of this is expected to be raised through the increase in employer NI.

Less than one year after we saw the main rate of employee NI reduce by one third in two successive cuts (from 12% to 8%), the Chancellor announced that from April 2025, the employer NI rate would increase from 13.8% to 15%. Not only that but the starting rate to pay this tax would be reduced from £9,100 to £5,000. Whilst the Government kept its promise about not increasing income tax and NI on ‘working people’, with a huge additional cost for employers to manage from next April, this is likely to have an effect, albeit an indirect one, on employees.

Given the higher cost burden on employers how much will this impact on staff remuneration, recruitment and the employee benefits package being offered? This is yet to be seen as employers make plans ahead of next April.

Before the Budget there was a lot of speculation on whether employers would be asked to pay NI on pension contributions. However this did not materialise. Therefore one way to help mitigate the higher tax cost for employers would be to utilise a salary exchange arrangement. Whilst this would help lower the employer’s tax cost, the full benefit of salary exchange is unlikely to be enjoyed by employees from April 2025, as employers are more likely to retain all or part of their NI savings to help manage their costs.

Whilst pension scheme membership needs to be offered to employees from a legislative perspective, where does this leave other valuable employee benefit provisions? Group life assurance remains a relatively inexpensive but a very valuable benefit. It is also deductible as a business expense. Private Medical Insurance is another valuable benefit especially given the NHS waiting list. However, with medical premiums rising due to medical inflation and the NHS crisis, this poses a cost containment question for employers.

It is worth pointing out that whilst there are inevitable costs linked to setting up and maintaining an employee benefits package, it is now more important than ever to structure these benefits in a cost efficient way. By doing so, it will help motivate and incentivise your current workforce to remain loyal which will in turn reduce your recruitment costs.

If you’d like to discuss how to navigate these changes in your employee benefits package, please reach out to us and speak to one of our Employee Benefit advisers on 0207 709 5560.