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National Living Wage increased this month from £11.44 to £12.21 per hour. Employer National Insurance (NI) has also risen and the threshold at which employers begin paying NI for employees dropped from £9,100 to £5,000. For a business employing someone on average UK earnings of £37,430, the NI changes mean they will pay an extra £955 in NI each year. Switching to salary sacrifice for pension contributions can help businesses keep NI costs down. |
Clare Stinton, head of workplace saving analysis, Hargreaves Lansdown: "Tax hikes can make April a difficult month but there’s a real sting in the tail for employers this year. The cost of having employees has just surged, thanks to a double whammy of higher wages and increased National Insurance costs. The numbers add up fast for businesses with large workforces, and growing businesses expanding their teams will feel the squeeze. And with Trump tariffs rearing their head again, company balance sheets are feeling the pressure from all sides. However, there is one proven way to soften the NI hike: salary sacrifice. Also known as salary exchange, salary sacrifice lets employees give up part of their salary, usually in return for certain non-cash benefits, including contributions into pension schemes by their employer. The result is tax savings for both parties - the employee saves both the income tax and employee NI on what they sacrifice into their pension, and the business doesn’t have to hand over the 15% employer NI to the taxman on the portion of salary sacrificed. Salary sacrifice is often the most tax-efficient way to contribute to a pension, offering employees tax savings of 28-47% - and for those sacrificing income between £100,000 - £125,140, the effective savings soar to 62% (different rates apply for Scottish taxpayers). If an employee increases what they pay into their pension, the NI savings for businesses will grow. Any savings made by the employer can be reinvested back into the business or used to enhance employee pensions or wider benefits packages further. It could prove a very cost-effective way of boosting staff retention or way to control business costs at a difficult time.” |
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