How could the National Insurance increase affect you?
From 6 April 2022, the Government will be introducing a temporary increase to National Insurance contributions (NIC). This 1.25% increase means:
- Class 1A and 1B employers will pay 15.05%
- Class 1 employees earning below NIC upper earnings limit will pay 13.25%
- Class 1 employees earning above the NIC upper earnings limit will pay 3.25%.
From 6 April 2023 this increase will be replaced by a new tax named the Health and Social Care Levy which will apply to both employers and employees, including those above the state pension age, at a rate of 1.25% each. The levy will have the same thresholds and requirements as the qualifying NIC and will appear as a separate line on your employees’ payslip.
Find out more information on the National Insurance classes
How will the increase affect me and my employees?
Employer case study
Let’s take a look at how employers with 50, 100 and 500 employees will be affected by the NIC increase.
| Number of employees | 50 | 100 | 500 |
|---|---|---|---|
| Total yearly salary payment | £1,500,000 | £3,000,000 | £15,000,000 |
| Total employer NIC contributions 2021/22 | £146,004 | £292,008 | £1,460,040 |
| Total employer NIC contributions 2022/23 | £157,272 | £314,545 | £1,572,725 |
| Total increase to employer NIC contributions | £11,268 | £22,537 | £112,685 |
Figures are based on an average salary of £30,000 per employee. These figures are subject to change due to the upcoming NI threshold increase in July 2022.
Employee case study
Let’s see how this works for your employees. We’ve based this example on an employee who lives in England, earning £30,000 a year, has a personal allowance of £12,570 and is paying a 5% pension contribution.
| Monthly employee salary | ||
|---|---|---|
| Tax year 2021/22 | Tax year 2022/23 | |
| Gross pay | £2,500 | £2,500 |
| Income tax | £290.50 | £290.50 |
| National Insurance | £204.32 | £222.20 |
| National Insurance increase | N/A | £17.88 |
| Pension contribution | £100 | £100 |
| Take home pay | £1,905.18 | £1,887.30 |
These figures are subject to change due to the upcoming NI threshold increase in July 2022.
What do I need to do?
You can’t avoid this increase but there are options depending on how your scheme is set up.
If you’re already using salary exchange, your employees are already paying NIC on their salary after the exchange, but you may be able to mitigate this increase by encouraging your employees who can afford to pay in more to their plan. These employees could benefit from reduced NIC and saving more into their pension.
Here’s an example for an employer with a workforce of 100 people on an average salary £30,000 where employees are paying a 5% pension contribution through salary exchange. They would be paying an NIC increase of £22,537.
If your employees increase their contributions by 2.5%, you could mitigate half of the increase:
Additional £75,000 x 15.05% = £11,287.50
If your employees increase their contributions by 5%, you could mitigate the whole increase:
Additional £150,000 x 15.05% = £22,575
We’ve created some engaging material that you can use with your employees on why paying more into their pension can benefit them.
How much should I be paying into my pension?
Are you missing out?
If you’ve not set your workplace scheme up on a salary exchange basis, you may want to consider this. To find out more about how to do this speak to your financial adviser or visit our salary exchange pages.
Letting your employees know about the NIC change
To help you engage with your workforce and let them know about the changes they’ll see on their payslip in April, here’s an email template that you can download and share.