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National Insurance increase – what should HR do to prepare?

Kate Palmer - Peninsula UK

PM Boris Johnson announced yesterday that he would raise National Insurance contributions to cover the cost of social care. What does this mean for businesses? What HR should do now to prepare for the increase in April.

“Following this announcement, employers 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 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 employers to provide additional benefits or pay increases to cover the difference in net pay. Employers 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. Individual businesses will have to assess the financial impact this might have on their organisation and adjust where necessary to ensure long-term viability. If redundancies or changes to existing terms and conditions are needed, employers must make sure they are following fair processes and fully consulting 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. 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 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 pay slips as a separate “levy” deduction and making this deduction from working pensioners’ wages. Employers should use this time to prepare themselves for the upcoming changes, so they don’t get caught out.”

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