The Autumn Budget confirmed the planned National Insurance rise (announced in September) which is coming in April 2022. But what does it mean in real terms and how can we prepare for it?
We all know that we’re living (and working) in a time of great strain to the labour market. There’s no avoiding the news reports of “The Great Resignation”, with the pandemic forcing many to consider a career change or leaving work altogether.
This, coupled with the impact of Brexit on the labour force, has created one of the most powerful candidate-led markets we have ever seen. This makes it more important than ever to ensure that workers are paid fairly and feel appreciated. Failure to support personnel right now will leave employers without a hope of retaining their best staff, and this jeopardises the smooth running of operations.
But, just to add further complication to the already trying employment landscape, it was announced in September that there will be a 1.25% increase in National Insurance Contributions in the UK for individuals and businesses starting in April 2022.
In real terms this means an additional £505 per year on a £50k salary for an average worker.
But for contractors who are working under an umbrella model, who must pay both employers and employees NIC’s, the rate will be a 2.5% hike. This means an additional £1000+ for someone earning £50k.
Such a significant rise means that both agencies and contractors need to be prepared for when the rise happens in April.
Ideally, the rate rise will be passed on to the end client in the form of increased day rates for contractors. A day rate increase of 2.5% will effectively cancel out the NI increase and might go some way to help retain staff who have itchy feet.
Agencies would do well to have honest conversations about increased day rates with their end clients now, to prevent further risk of declining worker numbers. And those contractors who have so far encountered radio silence about the rise should consider reaching out to their end-hirers to ask them how they plan to help them through the increase.
At a time when everyone is feeling the pinch it is important to look for ways to support all workers, who at the very least need to be warned of the reduction in their take home pay before it happens so that they can try to prepare for the impact on their wages.
JMK recognises that it is a difficult time for everyone, and we want to reassure all our clients that we are here to guide and support where we can. If you are concerned about the impact of the NIC increase on your business, get in touch today to discuss how it can best be managed.
Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions.
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