Prime minister Keir Starmer twice refused to rule out an increase in employer’s national insurance contributions, The Guardian reported yesterday (15 October). Chancellor Rachel Reeves initially hinted at the change on Monday (14 October).
Critics have claimed that the changes, if implemented, would breach Labour’s manifesto claims that it would not further tax working people. However Reeves clarified that the manifesto promised national insurance would not rise for workers; this did not apply to employers.
“It is becoming increasingly apparent that the government is considering a raise in employer national insurance contributions (NICs) as well as the introduction of NICs on employer pension contributions, which are currently exempt from tax and NICs (subject to limits),” explained Bina Gayadien, personal tax and global mobility partner at Spencer West LLP.
Gayadien told HR magazine: “Any increase in the employer NICs rate will raise costs for businesses but also impact employees. Businesses may respond by reducing staff, freezing recruitment, and scaling down employee benefits.
“Employers may manage additional costs by reducing bonuses which are typically made before the end of the fiscal year, and pension contributions, impacting employees’ overall compensation.”
Employers currently contribute 13.8% of all employees’ earnings over £175 per week in national insurance.
Read more: National insurance cuts raise state pension question
The government also implied that national insurance could be introduced on employer’s pension contributions, which are currently untaxed.
This could cause employers to reduce employees’ pensions contributions, said James Cockett, senior labour market economist for the CIPD.
Speaking to HR magazine, he said: “Employers may decide to reduce their contribution to workers’ pensions if they must pay NICs on them.
“Currently, workers in salary sacrifice schemes can increase their contributions into a pension scheme which, as it stands, reduces the amount of NICs both employees and employers pay. Introducing NICs on pension contributions may deter employers from offering this.”
He called on the government to invest in skills and reward in the autumn budget, following its introduction of the Employment Rights Bill on 10 October.
“HR would like simplicity from the autumn budget, given the responsibility they have in implementing changes,” he continued.
“This is distinct from the Employment Rights Bill, which is set to keep many in the profession on their toes. HR professionals wish to support the financial, mental, and physical wellbeing of employees, and an increase to the National Living Wage will certainly help the lowest paid.
“The best way for the budget to help employers is to raise business confidence, by encouraging investment in people, skills, and reward.”
Read more: Spring Budget 2024: what HR wants
Liz Sebag-Montefiore, director and cofounder of HR consultancy 10Eighty, wants skills investments to allow more workers access to training.
“I’d like to see incentives for investment in the skills needed to build a workforce trained for the jobs of the future,” she told HR magazine.
“Training and skills development could be incentivised, with short-term modular courses, allowing a wider range of workers to access training and development.
“We could reduce reliance on overseas workers and protect those whose jobs may be disrupted by net zero energy policies or new technologies such as AI. As well as training existing workers, it’s important to reskill those whose jobs are at risk from AI, climate change, globalisation, and other disruptors.”
The budget should also reform parental leave pay, according to Jane van Zyl, CEO at Working Families, a charity for working parents.
Speaking to HR magazine, she said: “While we recognise the limited fiscal headroom the government is working within, we urge them to consider two areas for reform where change is both pressing and necessary: the Flexible Support Fund and the rates of pay for statutory maternity, paternity, and shared parental leave.
“A review of statutory maternity, paternity, and parental leave pay would address the woefully low rates that force families on lower incomes to return to work before they’re ready.”
“For HR professionals, such reforms would have a direct impact on workforce management and employee wellbeing.”
