Salary Sacrifice / National Insurance - POST Oct24 Budget

Gaberdeen

I meant to post this shortly after the budget as I was curious to hear other peoples opinions on what the fallout of the Employers NI contribution increase would be for companies with salary sacrifice scheme's in place.

My first thought / assumption is that those Companies that offer schemes such as Cycle to Work and Pension contributions in lieu of cash salary will be less-affected by the budget changes to NI - as they have reduced exposure to national insurance by dint of the taxable salaries of their employees being reduced.

This led me to my second thought / question that if a company DID NOT operate such a scheme and faced increased NI deductions per employee, then salary sacrifice / smart pensions might be an attractive policy.

i.e. Is it feasible that companies who meet the eligibility criteria will perhaps be looking to introduce these as a mitigation?

The third thought was as how salary sacrifice relates to employees and the schism it creates between them.

Imagine 2 employees, doing the same job, on the same money with the same company, however one sacrifices 30% of their salary and the other doesn't sacrifice any. Can you see the dilemma?

One employee costs the company "less" to retain as staff than the other. Even if they are on exactly the same wages. This difference in employment cost has always been there, however now I think its possible that the increase in NI contributions could magnify the financial disparity between different employees.

i.e. Is it possible that this NI increase presents a potential moral hazard in influencing who is more likely to be made redundant if the business needed to cut costs? 

Cobbler_tone

I think this (let's be honest) stealthy increase will take a while to play out. Every employee on minimum wage is going to cost another £770 for starters. I am hazarding a guess that will be passed on in varying extents to the employees via reduced pay rises etc.

Interesting points on salary sacrifice. I am that person who sacrifices 30% and my (mainly younger) peers do between 6-10% (max double match to 12% total), so in real terms I might cost less to employ dependant on salary.
I have also been campaigning for 'bonus sacrifice', which for some reason the business are resistant to. I have pointed out it would save them further NI and the employees tax burden.
It doesn't even cross my mind that I could cost less to employ, I'm only concerned that I have the bigger pension!

In terms of redundancy selection criteria. I doubt very much it could be manipulated around who costs the most NI or salary. You even need to justify if you are using length of service these days and normally around skills, attendance, performance and disciplinary records.
 

Marcon

Gaberdeen said:

Imagine 2 employees, doing the same job, on the same money with the same company, however one sacrifices 30% of their salary and the other doesn't sacrifice any. Can you see the dilemma?

One employee costs the company "less" to retain as staff than the other. Even if they are on exactly the same wages. This difference in employment cost has always been there, however now I think its possible that the increase in NI contributions could magnify the financial disparity between different employees.

i.e. Is it possible that this NI increase presents a potential moral hazard in influencing who is more likely to be made redundant if the business needed to cut costs? 

Not quite sure you understand the meaning of 'moral hazard'?

Exodi

I would remind that many, typically lower paid employees (who are likely to see a high salary increase, in % terms next year), pay into workplace pension schemes.

These schemes restrict contributions based on income between the Lower Earning Limits (LEL) of ~£6.4k a year and Upper Earnings Limits (UEL) of ~£50.3k per year.

This means that an employer can make no pension contribution on the first ~£6.4k of annual earnings to an employee in a workplace pension scheme. This is contrast to salary sacrifice, where most employers make pension contributions based on an employees total earnings (which means not only on any money below the LEL but also on an unlimited amount above the UEL).

Not only this, but many businesses also pass on some (or sometimes all) of the Employer NI saving to the employee, in which case it wouldn't be fair to suggest a salary sacrificing employee is any better financially to a business than a non-salary sacrificing employee.

Tucosalamanca

Is it feasible that companies who meet the eligibility criteria will perhaps be looking to introduce these as a mitigation?
I'd say not, the outlook isn't clear enough to make such decisions.

Is it possible that this NI increase presents a potential moral hazard in influencing who is more likely to be made redundant if the business needed to cut costs? 
It wouldn't be high on my list.
Cost of redundancy, length of service, productivity, commitment, identifying the 'dead wood', how the employee would fit in with future plans would all be of greater importance.

Exodi

Tucosalamanca said:

Is it possible that this NI increase presents a potential moral hazard in influencing who is more likely to be made redundant if the business needed to cut costs? 
It wouldn't be high on my list.
Cost of redundancy, length of service, productivity, commitment, identifying the 'dead wood', how the employee would fit in with future plans would all be of greater importance.

Likewise, we usually create a matrix where we give a weighting to various elements.

While this might include attendance, performance, flexibility, etc, I can't say it's ever included employees pension arrangements.

Hoenir

Gaberdeen said:

i.e. Is it possible that this NI increase presents a potential moral hazard in influencing who is more likely to be made redundant if the business needed to cut costs? 

In the bigger scheme of things I'd say no. Having been in many involved in many organisational financial restructures over the years. Redundancy requires a proper process and a drawn up matrix to ensure all employees involved are treated fairly. Industrial tribunals come at a considerable cost to the employer and absorb a considerable amount of valuable management time. They'll be many organisations currently preparing budgets for the 2025 financial year who'll be wondering if their operation is going to be financially viable. The recent budget being the final nail in the coffin. Some organisations having little choice to pass increased costs onto customers. If some customers cannot / won't pay / reduce their purchasing. Then the whole business model rapidly unravels. 

ali_bear

My employer pays the savings in employers NI into the employees pension along with the salary sacrifice and employers contribution. 

And not many employees sacrifice a significant portion toward their pension. Most do the minimum. 

Hoenir

ali_bear said:

My employer pays the savings in employers NI into the employees pension along with the salary sacrifice and employers contribution. 

And not many employees sacrifice a significant portion toward their pension. Most do the minimum. 

Is the employer's pension contribution above the statutory minimum ? 

Gaberdeen

Lots of great feedback, thanks.

I should probably have pointed out in my original post that where a company "shares" the NI savings as additional contributions to pensions - there would be no disparity between "retention" costs for employees and no potential moral hazard.

I didn't because it's not legally binding for companies to share the NI saving in this way - however I'm happy for others to have pointed it out.

I may even broach this subject with my own company as they currently offer salary sacrifice but do not redistribute the NI savings as increased contributions.