Managing Budget impact

Now that the Chancellor has shown her hand in the recent Budget, employers might be forgiven for feeling they have the broadest shoulders in the UK.

It’s not just National Insurance Contributions (NIC) changes that employers are grappling with, it’s also the changes to worker’s rights, the tax treatment of tips and increase in National Minimum Wage (NMW) rates of pay.

Our Budget highlights can be found here.

There has been a lot of press coverage from businesses, especially in the care, charity, retail and hospitality sectors that the scale and cost of these changes will lead to higher costs passed on to the consumer, lower pay awards to employees, recruitment freeze or lower business profits.

We have previously commented on the changes announced in the Employment Right’s Bill. Many of the proposed changes are some way off given the need for prior consultation however the direction of travel is clear. 

Understanding how these changes will impact your business and putting in plans to manage or mitigate them will be a key ingredient to enhance your business resilience.

Salary sacrifice

Salary sacrifice is an established method to provide employees with certain “protected” non-cash benefits in lieu of their salary resulting in lower NICs for both employees and employers.

Employers who have previously been dissuaded due to increased administration may be willing to take the leap when employer’s NIC rises to 15% from April 2025.   

Salary sacrifice, most notably pensions salary sacrifice, is a win-win for the employee and employer as both save NICs, meaning the employee’s comparable net pay increases under salary sacrifice.

But what about those employers who already operate an effective salary sacrifice scheme, or with high levels of NMW workers who cannot participate in salary sacrifice? Focussing on other areas of employee compensation could yield efficiencies. We discuss some ideas in our article here, or a tronc scheme might appeal to those employers caught under the new tips and gratuities Act.

Bonus waiver

However, if paying cash bonuses, an effective bonus waiver scheme might be attractive. The employee effectively waives their bonus in return for an employer pension contribution into their pension fund. To encourage take-up, employers could offer an enhanced bonus pot from some of the employer NIC savings made.

Employment rights

The proposed labour changes under the Employment Rights Bill will undoubtedly increase employment costs – directly in the form of day-one rights to Statutory Sick Pay (SSP) and parental leaves and the removal of age bandings for the National Minimum Wage, and indirectly with restrictions placed on zero hours contracts and removing qualifying service for unfair dismissal claims. On this latter point the government have thrown a lifeline in the form of a statutory probationary period however it’s likely that robust performance data will still be required to justify a termination draining line management time and placing a spotlight on selection processes to avoid bad hires.

Obtaining insights

Crowe is undertaking some anonymous straw polling to gather insights into the approach employers may take in response to these changes and will form part of ongoing conversations in this space. If you would like to take part, please click here.