Why the National Insurance hike will cost employers way more than the headlined 1.25% rate
Here is why the true cost of the National Insurance increase is around 8.6% for employers
The announcement from the prime minister of the go-ahead with the hike in Employer’s National Insurance contributions will have employers fight harder to prevent losing more talent from their business, and therefore increasing costs.
From April 2022, both employers and employees will face tax rises so we asked our Payroll Specialist, to explain what the true cost of this increase is to businesses:
What the 1.25% NI hike really refers to
The 1.25% refers to both employers and employees and it is expected to raise about £12bn which will be used to fund the pandemic backlog. Depending on how much an employee earns, they will have an extra 1.25% coming off of their pay each month which might result in either a higher or a lower net income.
By taking a look at the table below, an employee on £30,000 and with net take home pay £23,113 will see it increase by £55, to a yearly net take home pay of £23,168 from April 2022. However, an employee on £50,000 with net take home pay £35,914 will see it decrease by £195 to a yearly net take home pay of £35,718.
The cost for employer
Although the increase in National Insurance for employees is 1.25%, the threshold changes have improved the situation for those earning below £35,000. Employers however, will have to pay an additional £225 in National Insurance costs. A business with 30 employees with an average salary of £30,000 will have to pay at least an extra £6,750 per year in National Insurance contributions from April 2022.
What can be done to reduce the impact
There are strategical ways for business owners to reduce their National Insurance costs. For example, pretty much every employer now has a workplace pension scheme; yet around 70% of small and medium businesses are paying huge sums of National Insurance on top of their employee’s pension contributions. Businesses can look to operate a government-recognised salary sacrifice pension scheme and stop paying National Insurance on employee pension contributions, which would cover the cost of this NI hike.
For more information, get in touch with us through our chat box or book a call with one of our specialists.