Rising workforce costs: Ways to save on employer NI

It is no secret that the majority of industries in the UK are suffering with pervasive skills shortages meaning companies are competing for talent and as a result wages growth is increasing. 

However, with 79% of firms reporting they cannot easily fill job roles (BCC Research), and three quarters of businesses saying labour costs are the biggest pressure they face, it is putting employers and the economy under increasing strain. 

Being at the forefront of the recruitment market, I know a few companies are reconsidering or putting on hold their recruiting plans for the immediate future. 

From April 2025, UK firms will pay £25 billion more per year due to the higher National Insurance Contribution. So how can employers help offset these costs without cutting wages? 

Salary sacrifice or what I prefer to call ‘Salary Exchange’ –  where the employees can exchange part of their salary for other benefits such as pension contributions may be a good option. It enables employees to make pension contributions in a more NIC efficient way, as these deductions are now deducted from your gross pay, they are not subject to either tax or NIC.

Mercer Marsh Benefits (MMB) explained ‘The potential NIC savings, both for employers and employees, can be substantial. For companies contributing the minimum 3% pension contribution and hence employee contributions of 5%, salary sacrifice / exchange could save around 0.75% of total payroll costs. Employers with higher employee contribution rates could see even larger savings.’

Some employees may feel like they are losing a proportion of their wages but they are not, rather it is in exchange for another kind of benefit.  Aside from pensions, other salary exchanges can come from benefits including cycle-to-work schemes, holiday buy, electric vehicle plans, and childcare support. Smaller but still significant savings come from offering grocery stipends, financial guidance, gym memberships, and technology allowances.

Claire Sharman, Workplace Education Consultant at MMB, uses the example of grocery stipends: “The average household grocery bill is over £4,000 per year. Given the cost of living, this can really help employees.”

As well as saving NIC, these benefits can have a positive impact on attracting new talent and retaining employees. 

When you run a business it certainly seems you are constantly battling a stream of curve balls but one thing I know for certain is the UK has exceptional interior designers and you will always be in demand. In short – if you can work out how to fit air conditioning, a commercial kitchen and a bar in a small listed building the NIC increase is a breeze!