Autumn Budget 2024: Employer’s National Insurance Rise?

Notably, two years ago there was an increase in NIC in the form of the health and social care levy, which was introduced by Boris Johnson’s Government but repealed soon after. The impact of this increase was limited given the short period of time it applied but it raised both employee and employer rates by 1.25%.

Currently, employers pay NIC at 13.8% on employee earnings above £9,100. Small employers can benefit from the employment allowance which reduces an employer’s NIC bill by up to £5,000 each tax year.

In addition, employers are also required to pay Class 1A NIC on the total value of non-cash benefits provided to employees (such as private medical insurance) and Class 1B NIC on benefits reported under a PAYE settlement agreement.

We explore the impact of an increase to national insurance on employers and employees, as well as some other measures employers might expect in the Autumn Budget on 30 October.

Class 1 employer NIC is a significant source of revenue for the Government. In 2023/24 this generated around £108.5bn and so a 1.25% increase in the rate to 15.05% could generate an additional £9.8bn of annual revenue. Wage inflation, coupled with the freezing of NIC thresholds is likely to further increase the revenue raised going forward.

As an example of the potential cost increase, an employer with an annual wage bill of £5,000,000 across 100 employees would currently have an employer NIC liability of approximately £564,000. An increase of 1.25% would increase that amount to approximately £615,500.

The example shows that a 1.25% increase in the employer NIC rate would roughly translate to an increase in employer NIC costs of 9%. It will be prudent to allow for an increase in employer NIC costs when modelling pay rises for 2025 and beyond.

Employers should review their benefit offering to ensure that they are getting value-for-money in light of this potential increase to the overall cost of the provision of benefits. The structure of benefits should also be reviewed to ensure that exemptions that are available, from both income tax and NIC, are being captured.

Notably, an opportunity may arise for employers to offset some of this cost through the use of a salary sacrifice pension scheme including bonus sacrifice where not already in place.

• Employer pension contributions – There has been some speculation that the Government will seek to restrict the NIC exemption that is available on employer pension contributions and potentially look to restrict tax relief on pension contributions. This would be at odds with recent successive governments’ attempts to address the ‘pension gap’ and may limit the incentive for employers to offer salary sacrifice pension schemes
• NMW - The Low Pay Commission recently published their recommended National Living / Minimum Wage figures [1]. Whilst the numbers may change ahead of the issue of their final recommendations later this month, they currently estimate the NLW to be between £11.82 and £12.39, which will compound the impact of any potential increase in the employer NIC rate for employees receiving a pay rise as a result of this change
• Employment rights – An extensive range of employment rights announced by the Government will undoubtedly have an impact on employer costs both initially and in the long-term as more resources may be needed to manage the increased obligations

Until the Chancellor lays out her plans on 30 October it is unclear what measures will be introduced, however employers should be prepared for an increase in employer NIC and should assess any measures available to manage their overall employee costs. 

[1] - How the LPC will respond to our updated remit - GOV.UK (www.gov.uk) 

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