Wednesday’s budget contained little from an employment law perspective, save for the news that national insurance contribution (NIC) savings will only be allowed on the first £2,000 of an employee’s pension contributions that are made via salary sacrifice in any year. In practice, this means yet another hike in employer NICs in respect of any employees who currently make contributions above this amount each year, via salary sacrifice. This follows on the back of the 1.2% increase on all employer NICs that was implemented just a few months ago, in April.

Whilst this change will not affect employers to the same extent as the April rises, it still represents a material increase in the direct costs of most workforces – especially those who are more highly paid and/or make voluntary contributions to their pensions via salary sacrifice. Whilst salary sacrifice arrangements for employee contributions made at a level above the cap will still be permitted, they will no longer attract the advantages of either employer or employee NICs that they currently do. This means that those employees who make contributions over the cap will also be directly impacted, as they will only receive tax relief (and not also employee NIC relief) on their contributions.

These changes are coming into effect from April 2029, so employers have some time to try and budget for this latest tax rise.