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Credit: Sean Aidan-Calderbank / Shutterstock

  • One change to plan for is the increase in employer national insurance contributions by 1.2 percentage points to 15% from 6 April 2025.
  • Employers can plan by identifying how they will be impacted and deciding on what they can do to accommodate any changes.
  • Offering salary sacrifice arrangements could help reduce the impact of any cost increases.

This year’s Autumn Budget, delivered by Chancellor of the Exchequer Rachel Reeves on 30 October, included several key announcements that could impact employers’ reward and benefits strategies. In order to prepare effectively for any potential impact, employers should start planning now, while keeping their employees at the centre of any decisions.

Upcoming changes

The changes in the Budget will likely affect employers’ reward and benefits strategies, because it will increase costs for many organisations. The national living wage increase by 6.7%, due to take effect from April 2025, will particularly impact those that operate in industries that typically pay a lower wage.

Meanwhile, the rate of employer national insurance contributions (NICs) will increase by 1.2 percentage points to 15% from 6 April 2025, meaning employers will have to pay 15p in NICs for every £1 paid to an employee. In addition, the NIC per-employee secondary threshold at which employers start to pay will be reduced from £9,100 per year to £5,000 per year. Organisations that employ a high percentage of employees earning the national minimum wage may have less scope to offset this, if they cannot absorb or pass on some of the additional costs to maintain profitability.

However, employers should not have an initial knee-jerk reaction to the announcements, says Julia Turney, partner and head of platform and benefits at Barnett Waddingham. “Employers need to ensure that they balance any additional costs and offer a competitive package, while still looking after employees’ wellbeing and satisfaction levels,” she explains.

The Budget will also impact employers that provide company cars or offer car ownership schemes. The government intends to publish draft legislation to tackle loopholes in ownership arrangements, in which an employer or third party sells a car to an employee, often through a loan with no repayment terms and negligible interest, and then buys it back afterwards to bypass company car tax payments. Employers that may be affected by this should bear it in mind and act accordingly.

Planning ahead financially

As the Budget could create challenges around managing increased employment costs, it is essential that employers proactively plan and make strategic adjustments to their reward and benefits offerings. 

Introducing salary sacrifice arrangements could help to reduce the impact of the NIC increase. Employers might explore schemes such as bikes-for-work, holiday trading and home technology schemes which enable employees to purchase technology products through salary sacrifice, because these can help offset some of the additional costs while still offering support.

However, organisations need to be aware that, as a result of any scheme, staff take-home pay cannot fall below the national minimum or living wage hourly rates. It can also affect state benefits, such as the amount of maternity pay to which they are entitled.

“Employers could also review their current recruitment plans, look at how they can balance costs with their future growth, and decide how much to absorb themselves or pass on,” says Turney. “It’s important to think about how to budget going forward and what the best way to spend money on a smaller budget would be.”

Employers should focus on both short-term temporary responses and longer-term investments, says Charles Cotton, senior reward adviser at Chartered Institute of Personnel and Development (CIPD). “Short-term responses include accepting higher overheads, increasing prices and implementing a recruitment freeze, while longer-term investments include job design improvements, introducing or increasing automation for routine to menial tasks, and giving workers more autonomy and say in their roles,” he explains.

Adapting reward strategies

Employers could also review and update their reward strategies to ensure they address employees’ needs beyond their salaries. Initiatives, such as advice and support through dedicated financial wellbeing platforms, can be enhanced to offer a more sustainable approach while grappling with budget changes.

Fostering a workplace where employees feel valued and appreciated should remain at the heart of a reward strategy, says Christina Kelly, reward manager at Reward Gateway Edenred. “Now is the time for employers to look at their benefits communication strategy, how they can drive awareness and engagement of what they offer, and ensure it is accessible and easy to access,” she explains. ”Having strong metrics on benefits engagement and the impact on return on investment will help, especially with the current financial complexity.”

Developing a clear communication plan to inform employees about changes to benefits or compensation structures is vital to maintain transparency, trust and engagement, and to effectively navigate changes.

Dr Jonathan Lord, senior lecturer in human resources management and employment law at University of Salford’s Business School, says: “Employers will need to focus on career development opportunities, flexible-working arrangements, and recognition programmes to maintain employee engagement. Investing in mental health support and wellbeing initiatives can lead to increased productivity and reduced absenteeism.”

Avoiding culling benefits

To offset rising costs, employers could reassess their benefits offerings, with options considered to be non-essential potentially at risk of reduction or elimination. Given the ongoing competition for talent, however, they should be cautious with this approach so as not to impact their attraction and retention efforts.

“The effect on employees not having access to benefits they were used to may result in absences, retention and wellbeing issues, so it is important to assess which ones are used and make a decision based on this,” explains Lord. ”Ensuring adherence to the new wage and NIC regulations will be crucial, necessitating updates to payroll systems and processes.”

But while employers will undoubtedly look to rein in or remove costs, a reduction in pay rises, or a total freeze where profit margins are tight, is more likely, says Graham Yearsley, principal consultant and employee benefits lead at Quantum Advisory. “Private healthcare, group income protection where employers insure their NIC, and employer pension contribution levels will undoubtedly come under the spotlight,” he explains. ”Indeed, anything taxed as a benefit in kind on employees, such as critical illness, optical and private [medical insurance], are subject to employer NI and will come under review.”

Employers that have more expensive benefits may introduce measures to help them save costs. Private medical insurance (PMI) can be expensive, so organisations could reduce premiums and excesses, or remove some of the covers they offer. Others may explore lower-cost benefits or review what they already have as part of existing schemes.

“If employers do cut benefits, they should ensure they understand why they are doing so, such as low take-up, engagement levels or cost, and make better use of existing ones,” explans Turney. ”They should use their data effectively and listen to what it is telling them. It is critical they take stock of what they already have and ensure that it is offering employees value if their budget is smaller going forwards.”

Some employers may choose to restructure their benefits offerings to focus on high-impact, essential programmes, rather than luxury or non-essential perks. “Whatever choice is made, it’s crucial that it is anchored to a long-term strategy and not just a short-term win,” adds Kelly.

While the Budget announcements will impact employers and their reward strategies in different ways, it is important they ensure they still offer employees a strong value proposition and support their needs.