National Insurance cuts - employers continue to bear this ‘people cost’

The further reductions in NI rates are broadly welcome, as they will put more money in the pockets of employees and the self-employed. However, this is only returning to individuals some of the extra tax they have had to pay due to fiscal drag as the government has frozen tax rate bands and annual allowances until 2027/28, and no changes were announced in the Spring Budget to address this.

Crucially, the employer rate of NI is not being reduced, so this will stay at 13.8% - this is the charge paid by an employer when they pay their employees, and it falls on the employer and not the employees.

Without a corresponding cut in employer NI, employers will continue to bear this ‘people cost’ at the same level.

This is at the same time as many employers in sectors such as retail and manufacturing will see their people costs increase due to the uplift in the hourly rates of National Living Wage and National Minimum Wage.

There is a practical challenge for client Payroll teams – they had to rapidly mobilise updates to their payroll systems from January following the Autumn Statement in November. They now only have a month to implement another big employee NIC change from April. Whilst it might seem as simple as switching the NIC rate from 10% to 8%, payrolls can be big, complex processes, so any change needs to be managed carefully in advance to avoid costly errors.