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The Autumn Budget has introduced several changes that will impact both businesses and employees. Laurie Eggleston and Jonathan Berger explain the measures and how employers can successfully balance rising costs with growing employee expectations.
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If you're facing increased employment costs now is the time to review employer spend, particularly in relation to benefits packages; to ensure they're cost-effective and competitive, but also in relation to expenses. Our recent CFO Pulse Survey suggests that employers recognise the challenge. One-in-three say that changing employee expectation is one of their top challenges in attracting and retaining talent.
Budget 2024: three key measures for employers
Rachel Reeves' first Budget since Labour formed a new Government in July introduced several changes that will increase the cost of employing people.
1. Increase to Employers' National Insurance Contributions (NICs)
The rate of Employers' NICs will rise from 13.8% to 15% as of 6 April 2025. The secondary threshold, the point at which contributions are due, will also decrease from £9,100 to £5,000. These two measures will lead to significant additional costs for all but the smallest employers.
2. Increase to national minimum wage rates
The minimum wage for over-21s is set to rise by 6.7% from £11.44 to £12.21 as of 1 April 2025. For someone working a 37.5-hour week, that equates to more than an extra £1,500 per year. Employees under the age of 21 and apprentices will also see increases, and employees further up the pay scale may also expect similar increases, to protect the relative value of their salary.
3. Frozen tax thresholds
The freeze on income tax thresholds will still continue until 2028. This means that any future pay rises over the next few years will face a higher burden of tax (in real terms), increasing the pressure on employers to provide above-inflation rises. With inflation still a concern, employees are increasingly interested in benefits that can help them manage financial pressures, such as cost-effective health care, transport subsidies, and increased salary sacrifice options.
How can employers respond to these changes?
It's important for employers to ensure that they're doing everything they can to keep costs down, whether in relation to benefits or expenses, and maximise the value of their spend where possible. Despite increased costs, offering a competitive reward and benefits package is still essential for attracting and retaining talent.
A comprehensive review of employment costs as we move towards the new tax year will help manage costs and recruits high-quality employees.
Reviewing the cost of current benefits
Understanding the cost of providing employee benefits, and opportunities available, can help an employer to mitigate some of the additional costs. With the effective use of salary sacrifice, it’s possible to expand the range of benefits while saving money at the same time.
Realising the potential of salary sacrifice
Pension salary sacrifice, cycle-to-work schemes, and electric-vehicle leasing can all form key components of an employee benefit package, alongside core benefits such as group risk and healthcare. Each of these benefits offer employers' NICS savings, with more available as uptake increases. Additionally, holiday trading offers employees the opportunity to sacrifice salary in exchange for more annual leave. This can lead to decreased salary and national insurance costs for an employer.
Employees can also save on both NICs and income tax, depending upon the benefit. Care is needed when designing and implementing these schemes to ensure tax and minimum wage compliance. It’s important to select a provider that’s right for your organisation.
Online benefit platforms can also play a key role in creating effective member pathways to help employees engage with what’s on offer, and model the potential monthly costs of any selections.
Renegotiating existing benefits
It's often possible to secure more favourable terms with existing benefit providers. The market is very competitive because insurers are keen to retain business.
It’s usually possible to get more leverage from existing benefits too, by making the most of value-added services, such as employee assistance programmes. This can help identify and remove duplication from any benefit spend.
Platform charges have also seen increased costs in recent years. Benchmarking any existing costs can also lead to savings. Similarly, consultancy costs, whether in fees or commission, should be assessed to ensure value for money. Commission can often be hidden within a premium and it may be cheaper to switch to a fee-basis and pay a lower premium.
Restructuring existing benefits
In some circumstances, in the face of rising costs an employer may regrettably conclude that certain benefits are simply unaffordable. This could be especially true for companies that may have seen large annual premium increases, such as private healthcare.
It's usually possible to restructure a benefit to make it more affordable and this should always be considered before removing a valued benefit entirely. For example, you could consider the scope of health conditions a medical scheme covers. Alternatively, a limited payment term for group income protection claims could be introduced.
Total reward statements help employees understand that there's a cost to providing each benefit, and they do appreciate that budgets are ultimately limited. Most would prefer to have a benefit scaled back rather than lose it completely.
Think about tax-free benefits
Employee expenses can be a considerable cost to a business. When the tax and NIC costs are taken into account, particularly given the rise in PSA costs, which are further amplified by the freeze in thresholds, the impact is likely to continue to increase.
Having robust processes and controls in place, through up-to-date expense policies and systems, can help to manage this. Taking advantage of employment tax exemptions may provide further opportunity to maximise spend, along with awareness of tax-free benefits. The ability to offer benefits such as work-related training, holiday purchase, or trivial benefits, can enhance your employee value proposition, often with little or no additional cost.
The value of voluntary benefits
Whether through inflation and the cost of living, shifting work/life habits, or increased flexibility, employee expectations have clearly changed. Offering remote and hybrid working options, enhanced mental health support, or financial wellbeing services might be more important now than in previous years. Employee reward packages are evolving, as people expect a much broader range of diverse benefits that support different aspects of their lives.
Employee-funded voluntary benefits are therefore a great option, as employees can still benefit from being able to participate in a collective scheme with far better terms than they could receive as an individual.
The post-Budget benefits package
The Budget has prompted many employers to consider how they can deal with increased employment costs, but it’s important to remember that there's often scope to make savings that will help to offset some of them. Transparency and clear communication are essential when making any changes to benefits packages. Employees should understand how any changes will impact them, including from a tax perspective, and what new or revised benefits are available, otherwise there’s a risk that take-up rates are lower than hoped for, along with any associated NICs savings.
A thoughtfully crafted benefits package offers mutual value: employees experience greater peace of mind and appreciation, which translates into reduced stress, increased loyalty, and heightened productivity. In turn, employers enjoy reduced absences, lower turnover, and a stronger ability to attract top talent.
