May’s increase in employer National Insurance Contributions (NICs) – from 13.8% to 15%, and reduction in the threshold at which employers start paying it – has finally taken effect.
The tax rise has essentially increased the cost of employing staff and made planned salary increases significantly more expensive to implement. Even modest pay rises now carry a steeper price tag once the additional NICs are factored in, which may force organisations to limit or delay wage reviews altogether.
The timing is unfortunate to say the least. With the persistent cost-of-living crisis already stretching household budgets to breaking point, employees who were counting on pay increases to ease financial pressures now face disappointment. What’s more, this disconnect between expectations and reality threatens to deepen levels of disengagement in the workplace.
The Great Detachment: A silent crisis
This growing wage frustration is fuelling a troubling workplace trend known as the Great Detachment.
Unlike the Great Resignation where employees actively left their roles, those experiencing detachment remain physically present but mentally checked out. They stay in their jobs out of financial necessity or lack of alternatives, but their engagement and productivity plummet.
The impact on businesses can be substantial. Research suggests organisations with high levels of employee detachment suffer from lower morale, decreased output and ultimately higher turnover when market conditions improve.
Put simply, detached employees are waiting for the first opportunity to leave – this is creating a ticking time bomb of talent loss that could explode when the job market recovers.
What really matters to employees?
While competitive pay remains important, financial wellbeing extends far beyond base salary. When faced with limited wage increase options, employers still have options and can focus on alternative approaches that can ease financial pressures while fostering engagement.
According to our recent survey of over 2,000 UK workers, 42% of young employees would feel more favourable toward their employer if offered education on increasing take-home pay and saving money. Additionally, nearly one-third believe that greater financial understanding would help them make better financial decisions.
Young employees are also very sensitive to processes’ transparency and clarity: they are more inclined to accept a lower than expected increase if they understand why and how decisions are made.
In a constrained context, employers should invest time in explaining the “rules of the game” both providing contextual information about the macro-economic context and being open about their own processes and compensation policies or approaches.
Practical alternatives to salary increases
When salary increases aren’t feasible, meaningful solutions can address financial pressures while fostering engagement. These alternatives can deliver tangible value to employees at a fraction of the cost of across-the-board pay rises, while simultaneously demonstrating that the organisation genuinely cares about staff wellbeing. Most importantly, these options can be implemented quickly without requiring the substantial budget increases that traditional salary rises would entail in the new NIC environment.
For example, financial education provides a foundation for better money management and can help employees maximise their existing compensation.
For example, organisations can:
● Offer workshops on financial planning, debt management and building emergency funds.
● Provide access to financial advisors or coaching services.
● Create resources explaining the benefits of salary sacrifice schemes, particularly for pensions – our research found just 9% of 18–24-year-olds feel confident explaining the concept.
Beyond education, tangible benefits that directly reduce living costs can help employees stretch their existing pay further and alleviate financial pressure points. Here, organisations can consider:
● Introducing childcare subsidies, which can save working parents thousands of pounds annually.
● Implementing salary sacrifice schemes for essentials like technology purchases or transportation costs.
● Offering employee discount programmes on everyday essentials to deliver meaningful monthly savings.
● Supplying free or subsidised meals at work, commuting subsidies, and wellness benefits that reduce healthcare costs.
● Working on “spot bonus” schemes, recognising exceptional contributions or overachievement.
The long-term view
While the NIC increase makes immediate pay rises challenging, employers should frame this period as temporary.
Creating clear career development pathways demonstrates that current compensation constraints does not necessarily mean permanent stagnation. Upskilling programmes, mentoring opportunities and internal mobility initiatives can maintain engagement by showing employees they have a valued future within the organisation.
Employers should also maintain open dialogue about compensation. Regular reviews of market rates and internal pay structures, coupled with transparent communication about when and how pay adjustments might resume, will prevent employees from assuming wage freezes are permanent.
The employers who successfully navigate this challenging environment will be those who recognise that engagement isn’t simply about salary figures. By offering meaningful alternatives, maintaining transparent communication and demonstrating genuine concern for employee financial wellbeing, organisations can maintain engagement and loyalty even when traditional pay rises aren’t immediately possible.
In doing so, they will not only weather the current economic challenges but emerge with stronger, more resilient workforces ready to drive future growth.
