From April, national insurance payments will increase as part of the government’s plan to aid the economy post-Covid 19. 

The Salary exchange (Or salary sacrifice) scheme is an agreement to reduce an employee’s entitlement to cash pay in return for a non-cash benefit. They will not reduce an employee’s earnings below the national minimum wage. You can find more information on this on the government’s website. 

Employees currently pay their national insurance at 12% for an income of £184 – £967 per week – anything over £967 is at 2%. These percentages will be increased to 13.25% and 3.25%. Employers will also contribute to the rise of NIC. Currently, for any income over £170 per week, employers have to pay 13.8% NIC. However, this percentage will rise to 15.05% with the salary change. You need to pay and deduct the right amount of tax and National Insurance contributions for the cash and benefits you provide. Employees are urged to explain these changes to their staff as a lower salary could also affect future entitlements such as maternity and paternity pay, benefits and potentially mortgage applications. Other employee benefits could also be affected – therefore, explaining the effects based on your staff’s circumstances is a must. 

The government implements these changes. Nothing can be done to avoid the increase in NIC. It is time to consider using a salary exchange scheme to reduce the impact on employees and the company. Managers and leaders should discuss this scheme with staff before being implemented. 

If you would like to have a chat on salary exchange and employee benefits, do not hesitate to contact us.