Midlands firms turn to salary schemes to mitigate budget costs, new research shows

At the announcement of her Autmun mini-budget in November, chancellor Rachel Reeves announced an increase in Employer's National Insurance contributions, set to rise 1.2% in April to 15%. Meanwhile, the level at which employers start paying NICs for each employee will fall from £9,100 to £5,000.

In response nearly a quarter of Midlands companies (24%) reported that they would look to reduce or scrap planned pay increases or bonuses, while 29% said they would hire more part-time or contract workers, according to research by tax advisory firm BDO.

Overall, nearly three quarters (74%) of respondents to the survey said they were planning to take at least one action in response to the imminent rise in employers’ NIC announced at the Budget.

“The increases to employers’ National Insurance Contributions announced at the Budget and the accompanying drop in the threshold at which NIC applies to employee earnings came as a shock to many Midlands businesses. Unsurprisingly, the vast majority have been urgently exploring ways to mitigate this imminent jump in their costs," said Steve Talbot, Head of Employment Tax at BDO in the Midlands.

“There is no silver bullet, but clearly salary sacrifice schemes for things like pensions, Electric Vehicles or cycle to work schemes – which offer NIC savings to both employers and employees – are top of mind for employers.

“For those businesses not yet offering 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.”