As the Chancellor announced an increase in National Insurance (NI) rates from 13.8% to 15% on 30 October 2024, many employers are facing higher costs on the horizon. But there’s a silver lining: salary sacrifice schemes can offer significant savings opportunities for your business, helping to offset these new expenses and keep costs neutral.
Here’s a summary of the tax adjustments:
- NI raised from 13.8 to 15% exactly. A rise of 1.2%.
- The 15% NI rate will be in effect as of April 2025.
- The threshold that employers will have to pay the 15% from will drop from £9100 to £5000 of an employee’s salary.
If you’ve spent time on the Maji blog, you’ll know that a salary sacrifice pension arrangement is already a smart way to save money for your company and employees. But with today’s announcement, it’s more timely than ever to explore additional salary sacrifice schemes that can provide further savings and valuable benefits for your team.
In this article, we’ll dive into the main salary sacrifice options and how they can help your business adapt to rising NI costs while giving your employees a boost.
Firstly, here’s what you need to know about the changes being made to the budget.
What's in this blog?
What’s changed for employers?
UK employers are facing a challenge in 2025 in managing higher payroll costs. This 1.2% rise may seem modest at first glance, but it significantly impacts businesses’ bottom lines, especially for those with large workforces. Employers are now required to pay this additional NI on top of existing wages, meaning payroll expenses could increase substantially. In addition, the threshold that employers will have to pay the 15% from will drop from £9100 to £5000 of an employee’s salary. This means that for a 50 employee company with an average employee salary of £35K, their NI bill will rise by over 20%.
This change affects businesses across the board, particularly in sectors that rely on a higher number of employees or operate with thinner profit margins. It prompts employers to consider new strategies for managing payroll costs effectively to avoid passing these additional expenses on to consumers or impacting company profitability.
Get prepared for April 2025
There are some options you can implement to neutralise the effects of the increased NI Rate. In addition to pensions, salary sacrifice schemes for benefits like electric vehicles, workplace nurseries, and tech can help businesses remain cost-neutral despite the NI rate hike. With salary sacrifice, your business can offer valuable, tax-efficient benefits to employees without additional costs. This strategy enables you to keep your benefit offerings robust, support employee financial wellbeing, and simultaneously counterbalance the effect of the NI increase.
Your saving options with salary sacrifice
Now is an ideal time to explore salary sacrifice arrangements to help reduce overall payroll costs while still providing attractive benefits to employees. Salary sacrifice, or salary exchange, is an arrangement where a portion of an employee’s salary is exchanged for a benefit of equivalent value. The reduced salary lowers NI and income tax, creating cost savings for both employers and employees.
To make the most of these savings, you might want to start with schemes that are exempt from benefit-in-kind tax, which allow you to save on both NI contributions and tax:
- Payments into Pension Schemes: Pension salary sacrifice offers a significant savings opportunity as the full contribution can be made on a reduced salary basis, lowering both employer and employee NI contributions.
- Pensions Advice Provided by an Employer: Employees can access advice at a lower cost, contributing up to £500 per year tax-free.
- Workplace Nurseries: Offering nursery benefits through salary sacrifice can provide substantial savings and help reduce childcare costs by up to 50%.
- Bicycles and Equipment (Cycle to Work Scheme): An eco-friendly option where employees save on NI, and employers save on contributions for cycle-related equipment.
Beyond these, there are additional salary sacrifice schemes that, while subject to Benefit in kind tax, still offer employee savings and can be cost-neutral for employers, especially with the new NI rate:
- Technology for Work: Employees can spread the cost of essential tech like laptops and phones across the year, with NI savings that make purchasing more manageable.
- Electric Car Leasing: The tax and NI savings on a lower salary make leasing an electric vehicle more affordable for employees and cost saving for employers as well.
Salary sacrifice schemes go beyond pensions. Click here for a detailed overview of the different types of salary sacrifice schemes
By leveraging these schemes, employers can help mitigate the impact of rising NI rates, providing employees with valuable benefits while keeping costs neutral or even gaining savings. This approach to salary sacrifice helps maintain attractive compensation packages without the added burden of increased NI expenses.
Ready to save costs with salary sacrifice schemes?
As an employer, you can research and set up these schemes individually, either on your own or working with external providers. However, working with a third party like Maji can make it much easier to set up, communicate, and manage your salary sacrifice schemes.
Any third-party partner will help you with:
- Researching and vetting the different options for scheme providers, so there’s less risk for you
- Reducing the time and effort required to get these set up
- Securing you better deals and exclusive offers
- Integrating these schemes into your wider wellbeing strategy
At Maji, we can support you with the following schemes:
- Pension salary sacrifice
- Workplace nursery salary sacrifice
- Electric car salary sacrifice
- Cycle to work salary sacrifice
- Technology salary sacrifice
Book a meeting with one of our skilled team members to discuss how you can be prepared for the NI increase.
