The National Insurance hike and the cost of employee resignation

The National Insurance increase came into effect on the 6th April 2022. The 1.25% rise was announced by the prime minister and was introduced to raise funds for the Health and Social care sector following the pandemic. Due to the new thresholds, this will be impacting mainly employers and only employees earning above £35,000. 

The impact of the National Insurance increase on businesses 

Due to the National Insurance increase and its new thresholds, an employee earning £20,000 will see their take-home pay increase by £180 in National Insurance, while those earning £50,000 and £70,000 will pay an extra £195 and £445 respectively. This means that despite many individuals having a bit more money to spend on everyday essentials and utility bills, due to the current climate, they might still struggle to stretch their low budget. 

The current cost of living crisis means that prices of essential products and services are increasing at a rate that is not reflective of employees’ wages. Gas and electricity prices are increasing dramatically, with the price cap increasing by £693 from April 2022. Employees who were previously earning above £35,000 in their current job role to support their lifestyle may find that with inflation and the NI increase, they are only able to stay within their role if they receive a pay rise. However, employers will also have to pay more National Insurance from April and therefore are not likely to be able to accommodate pay rises amongst their team. Research shows that one employee living outside of London will currently cost their employer an average of £2,359.80 in National Insurance. Following the increase, this figure becomes £2,654.68.

Recruitment costs are high for businesses and the loss of productivity due to employee resignation could be harmful to business success. With the increase in National Insurance costs, employers could discover that they are unable to pay recruitment costs to replace an employee who resigns unexpectedly. The NI increase is expected to discourage businesses from employing new staff when they previously may have, therefore expecting other employees to work harder and take on tasks that would have otherwise been delegated. Deadlines may not be met and tasks may be rushed and not completed to the highest possible standard.

Research indicates that the National Insurance increase could result in 50,000 employees being made redundant from small businesses alone. This demonstrates the importance of employers taking steps to reduce the impact of the hike. 

The cost of employee resignation 

High levels of staff resignation and turnover are extremely costly for businesses. According to research, the average cost of turnover per employee earning £25,000 a year or more is £30,614. Costs incurred include the expense of advertising a position if the position is not filled internally. Whether an employer decides to advertise a position online or use a recruitment agency to fill the role, both are costly options. In some cases, investing more money into advertising a role ensures that it reaches a wider audience, potentially resulting in a larger range of more qualified applicants. 

Another cost of staff resignation arises from the need to train and induct a new employee. In order for the new employee to perform their job effectively and integrate well into the existing team, they must be trained well. Existing employees may have to take time out of their working day to help the new employee, therefore spending time away from their own tasks and responsibilities. It may take a large amount of time for a new employee to perform at the same level as their predecessor, and overall team productivity may be reduced as a result. Research suggests that it takes an average of 28 weeks for a new employee to reach the same productivity level as the individual that they replaced. The average cost of the loss of productivity is said to be £25,182. 

When a valued and long-standing employee resigns from their position, the morale of their previous colleagues may be impacted negatively. Employees may question why their colleague left their position and whether they should also be considering a career change. The employee who has resigned may have been an integral part of the team and have provided a service that made the lives of others easier in the workplace. Employers may need to focus on hiring someone that is knowledgeable and able to perform well in the role immediately. Knowledgeable employees may be more difficult to attract and may expect a higher salary, again increasing costs for the employer. 

Minimising the risk of employee resignation following rising costs of life and the National Insurance increase 

Despite the concerns surrounding the NI increase and staff retention, there are steps that employers can take to minimise the risk of employee resignation and turnover during these challenging times. 

A reliable way to reduce the impact of the National Insurance increase on your business is to implement the HMRC salary sacrifice pension scheme. The scheme involves an employee agreeing to reduce their gross salary by an agreed amount, with this figure being contributed to their pension as an employer contribution. The employee no longer makes their own contributions to their pension fund. As a result, both employers and employees make considerable savings on National Insurance costs. Employees’ gross pay is reduced, but their overall take-home pay is increased due to National Insurance savings. Because salary sacrifice pension benefits employers and employees financially, employee resignation is less likely to occur on a large scale. Employees will be more financially secure and are less likely to experience financial stress leading to poor mental health. Employers will be able to use National Insurance savings made through the scheme to improve their current employee benefits package or to offer pay rises or bonuses to some employees. Mintago can help your business to implement salary sacrifice pension easily, taking care of the hard work so that you and your employees can enjoy the savings. 

Another way for employers to reduce the risk of staff resignation due to the current climate is to provide access to better financial education for their employees. Improved financial education will allow employees to take charge of their own situations and is likely to decrease employee stress. Increased knowledge of benefits available to them will help employees to save money and reduce their expenditure. Mintago’s platform includes a wealth of information to help employees gain knowledge and insight into how to manage their finances effectively and begin on their journey to financial wellbeing. 

Following the National Insurance increase, employers may evaluate their employee benefits programme, considering whether they could improve their offerings and financially support their employees in a manageable way. For example, offering access to leisure vouchers such as restaurant discounts will allow employees to unwind when they are not working and save money on doing things that make them happy. Benefits such as gym memberships and reduced dentistry costs will also help to improve overall employee wellbeing within your organisation.

By Mintago Team

Mintago is an FCA regulated company that helps businesses save on their workplace pension NI costs and improves the financial wellbeing of their employees. For the employer, Mintago provides a salary sacrifice pension hassle-free implementation program which creates direct savings on monthly (National Insurance) NI payments. We manage the whole process including communication, compliance and ongoing management. No need to switch pension provider, either. For the employee, Mintago’s unique financial wellbeing platform helps find lost pensions quickly, manage employee pension contributions, while helping them understand their financial situation with over 1,000 pieces of content.

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