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National Insurance hike could hurt recruitment, employers warn

8 Sep 2021 By Caitlin Powell

But companies can mitigate increased organisation costs and avoid financial stress on employees, experts say

Businesses have expressed concerns over plans to increase National Insurance (NI) contributions from next year, with experts urging HR to look at ways of mitigating the impact on the lowest earners. 

Prime minister Boris Johnson announced yesterday (7 September) that from April 2022 there would be a UK-wide 1.25 per cent health and social care levy added on to both employer and employee NI contributions.

Johnson said the increase would share the cost “as fairly as possible” between individuals and businesses, claiming that the highest-earning 14 per cent of the population would pay around half of the revenue raised and that most small businesses would be protected – with 40 per cent paying nothing extra at all.



The money from the increase will be required by law to go directly to health and social care across the whole of the United Kingdom.

During a press conference following the address, Johnson told journalists he did not think the tax would have an impact on jobs and the recovery, while chancellor Rishi Sunak said that 70 per cent of the revenue would come from 1 per cent of the largest businesses.

However, businesses have expressed their concern about how the increase in contributions might affect hiring.


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At the time of publication, a snap poll by the CIPD found that 74 per cent of respondents said there would be an increase in their organisation’s costs following the health and social care levy. Only 2 per cent said there would be no increase. 

Suren Thiru, head of economics at the British Chamber of Commerce, said firms “strongly opposed” the increase, describing it as a “drag anchor on jobs growth at an absolutely crucial time”. Thiru warned that it would impact wider economic recovery by landing significant costs on firms when they are already facing pressures.

Similarly, Neil Carberry, chief executive of the Recruitment and Employment Confederation, said that while funding the social care system was vital, the increase in National Insurance is “the wrong choice”. 

“As a tax on jobs, and a tax on activity rather than profits, rising National Insurance will fall more heavily on the labour intensive sectors most affected by the pandemic,” he warned, adding that it also disproportionately affected lower earners. 

He also said that the rise in taxes on dividends – which the prime minister also announced yesterday – would hit small limited company directors who were denied any support during the pandemic. 

However, Martin Tiplady, managing director of Chameleon People Solutions, told People Management that, while he understood the opposition to the levy, it was important to address the issues within the social care system. “To the nay-sayers who argue against the increase, I do not join with them and understand why this change is, on this occasion, an important increase,” he said.

However, Tiplady said HR needed to be aware that low earners, young people at the bottom of the pay structure and those above pension age but still working would likely bear the brunt of the new levy. To support them, he said it would be important to look at the effect of the NI increase on their earnings and make sure that the real hardship cases were looked at and addressed. 

“This should not be in a do-gooding sense but simply as a good employer wanting to make sure that their wages are set at the desired level and have the reward impact they should,” he explained, highlighting that, if wages were minimal, it could be the difference between survival or not. 

Charles Cotton, senior reward and performance adviser at the CIPD, said that while organisations would probably accept higher costs following the NI increase in the short term, employers needed to reduce their costs by improving employee productivity to be sustainable in the medium to longer term.

"We don’t predict that employers will have to increase salaries for all workers in response to a cut in their take-home pay,” he said, adding that the CIPD does not forecast that benefits will be cut in the coming months. 

However, he suggested that HR help their employers create a financial wellbeing policy to manage and mitigate the risk of financial distress which some low-waged workers may feel after the increase. 

Kate Palmer, HR advice and consultancy director at Peninsula, said that companies may benefit from updating staff via email or through business channels that there will be a decrease in their take-home pay following the implementation of the levy. 

“Some employees will be understandably upset about this, but there is no obligation on employers to provide additional benefits or pay increases to cover the difference in net pay,” she explained. 

She also advised that, if redundancies or changes to existing terms and conditions were needed, employers must follow fair processes and fully consult with staff before taking any action.

“Some organisations might be more inclined to hire individuals on a self-employed basis to avoid contributing towards higher NI payments,” Palmer added. However, she warned that this may cause more problems if someone appears to be working under the wrong employment status.

Such risks, according to Palmer, would not only include a breach of employment laws and tribunal claims, but also costly back-payments to the employee and HMRC.  

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