National Insurance Increases from 6/4/22

National Insurance Increases from 6/4/22

A client has inquired about the Prime Minister’s proposals to raise National Insurance Contributions (NIC) to fund health and social care. They would like to know how it would affect them and what the HR considerations they should have are.

The proposal emphasises that 70% of the money raised from businesses will come from the largest 1% of businesses, while 40% of all businesses will pay nothing extra. The NIC increase will, the Government calculates, cost £255 a year for someone earning £30,000 and £505 a year for someone on £50,000.

Following this announcement, employers like my client will have to prepare their payroll teams for the adjustment from next April, to ensure they are meeting their legal obligations and making the correct deductions from employee wages. It may also be of benefit to send a reminder email to your staff, or update them through normal business channels, so they are aware in advance that there will be a decrease in their take-home pay, due to the increase in national insurance payments.

Some employees will be understandably upset about this but there is no obligation on the client to provide additional benefits or pay increases to cover the difference in net pay. The client can make their staff aware that this was not a business decision, but a necessary step mandated by the Government.

All other contractual entitlements should remain the same. The client will have to assess the financial impact this might have on their business and make adjustments where necessary to ensure its long-term viability. If redundancies or changes to existing terms and conditions are needed, the client must make sure they are following fair processes and fully consulting with staff before taking any action.

The client might be more inclined to hire individuals on a self-employed basis to avoid contributing towards higher NI payments. However, doing so may cause more problems if it is seen that there is an employment relationship in place and the individual is working under the wrong employment status. This could not only lead to a breach of employment laws and tribunal claims but also costly back-payments to the employee and HMRC.

Further changes are expected from April 2023, including recording the increased national insurance rate on employee payslips as a separate “levy” deduction and making this deduction from working pensioners’ wages. Your client should use this time to prepare themselves for the upcoming changes, so they don’t get caught out.

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