National Insurance savings

National Insurance savings helps minimise costs for employers and employees

National Insurance Contributions (NICs) are a significant cost to both you as an employer and your employees. However, you can reduce these costs by implementing a simple savings scheme.

Pension salary exchange, also known as salary sacrifice, is a legitimate and simple way to reduce national insurance costs for you and your employees. With pension salary exchange, employers pay their employees’ workplace pension contributions directly. These contributions are deducted before tax and NICs are paid. This means that both you and your employees pay out less in NICs. Employers may retain all, some or none of the savings in NICs. You could use these savings to pay additional pension contributions to enhance employees’ pensions or fund other employee benefits. The choice is yours.

What do NICs mean for you as an employer?

Employers pay NICs on employee annual earnings above £9,100 per annum, at a rate of 13.8% (effective 6 November 2022). Without exact payroll figures and pension contribution rates, we can only give a guide as to the potential NIC savings available to you. The following estimates illustrate these savings and the impact on your wage bill:

Figure 1 – examples of potential savings for employers (assuming the employer retains NI saving)

 

 

All figures are approximate and effects are per annum. Based on 3% employer, 5% employee contributions on gross earnings.

What do NICs mean for your employees?

Employees aged 16 upwards, earning £12,570 a year or more, pay national insurance. This qualifies them for certain welfare benefits and the state pension. Currently, this is at a rate of 12% on earnings between the primary threshold (£12,570) and upper earnings limit (£50,270); and 2% on earnings over the upper earnings limit (effective 6 November 2022).

Figure 2 – examples of potential savings for employees (assuming the employee retains NI savings)

 

 

All figures are approximate and effects are per annum. Based on 3% employer, 5% employee contributions on gross earnings.

How we can help

Moore Kingston Smith has the expertise to implement your entire pension salary exchange process for you. This includes employee communication and education. It is a valuable savings tool that employers and employees should be taking up.

If you would like to discuss how a pension salary exchange scheme can help you and your employees, please get in touch with Paul Beck on 020 4582 1562 or pbeck@mks.co.uk. Alternatively, contact us and we will be in touch.

Tax and benefit laws can change. The Financial Conduct Authority does not regulate tax and benefit advice.

Lead contact

Employee Benefits Consultant, Chartered Financial Planner
Paul Beck specialises in employee benefits and is based in the London City office. He assists clients with all their employee benefit needs, including pensions, group risk and private medical insurance. His clients vary in size and sector, and include owner-managed businesses, national listed companies and nonprofit organisations. Clients like that Paul talks about employee… Read more

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