Managing rising employment costs


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The National Minimum Wage and Living Wage increased from April, as well as national insurance contributions (NICs). Employers need to ensure they’ve planned for the changes.

National Living Wage
The hourly rate of National Living Wage that must be paid to workers aged 23 and over has gone up to £9.50; a 6.6% increase, equating to extra annual salary of at least £1,000. The minimum rate going up nearly in line with the expected rate of inflation puts pressure on employers to match this when it comes to settlements higher up the salary scale. Small and medium-sized businesses in particular could find the higher rates of minimum pay a strain on their finances.

National insurance contributions
Higher paid employees will see a big drop in their take-home pay from April following the 1.25 percentage points increase to the rate of NICs, even though the starting threshold is going up. For example, someone earning £100,000 annually will have take-home pay of nearly £91 less in April compared with March, but an increase of nearly £32 in July compared with June. July is when the starting threshold will see another, more substantial, raise to match the personal allowance at £12,570.

-Employers will also see a broadly similar increase in what they have to pay (with no reduction from July), and this is going to be
expensive if there is a team of highly paid personnel unless costs can be passed on to clients.
-Make sure additional costs are reflected in financial projections.

Salary sacrifice
The higher rates of NICs make salary sacrifice arrangements more attractive than ever, especially regarding employer pension
contributions. A company car salary sacrifice arrangement also works well for full electric and certain hybrids.
Salary sacrifice will not, however, suit everyone. Employees need to be aware that a lower base salary will normally mean a lower level of potential mortgage borrowing — a real problem given current property prices.

“The higher rates of NICs make salary sacrifice arrangements more attractive than ever, especially regarding employer pension contributions.”