Small to medium-sized businesses forfeit approximately £2.7 billion in potential National Insurance savings, according to findings by research conducted by Howden.
In a recent survey, it was revealed that a majority of UK Small and Medium-sized Enterprises (SMEs) have yet to adopt salary exchange schemes, missing out on substantial savings opportunities worth approximately £4.5 billion annually.
The survey, conducted in partnership with YouGov, polled 523 senior decision-makers in UK SMEs. It showed that 29% of SMEs are currently using salary exchange, leaving 68% not utilizing this cost-saving measure.
The lack of awareness about salary exchange is particularly pronounced among Micro SMEs, with 12% unaware of the practice, compared to 17% across all SMEs. Among those aware, 36% have not explored salary exchange in detail.
The survey highlights how rising employment costs are directly stifling economic expansion and job creation in the large SME sector. In response to the National Insurance (NI) increase, 32% of SMEs are freezing hiring, 28% are delaying planned salary increases, and 33% are passing costs onto customers.
These cost-saving benefits could ease financial pressures on both parties, allowing SMEs to reinvest into growth and support employees during cost-of-living challenges. The potential savings for SMEs and their employees are significant:
- Employers could save approximately £2.7 billion annually in NI costs by adopting salary exchange schemes.
- Employees could collectively save around £1.8 billion in NI payments and increase take-home pay. For instance, on a £38,000 salary, pension contributions could rise by 7.5% and take-home pay by 0.5%.
Salary exchange can help employees save more for retirement while supporting long-term financial wellbeing. Rachel Reeves, MP and Chair of the Commons Treasury Committee, emphasizes the critical role employers play in shaping the financial resilience of the UK workforce.
Cheryl Brennan, Director of Wealth Management at Howden, emphasizes that salary exchange is a powerful, underused tool for SMEs under financial pressure and employees facing cost-of-living issues. Implementing salary exchange can help employers reduce NI liabilities while boosting employees' take-home pay or pension contributions.
Despite these benefits, it is concerning that many SMEs are missing out on these significant savings opportunities. It is hoped that increased awareness and understanding of salary exchange will encourage more SMEs to adopt this practice and reap the associated benefits.
Embracing salary exchange could offer substantial financial benefits to SMEs, as they could potentially save around £2.7 billion annually in National Insurance costs. On a personal level, employees could collectively save approximately £1.8 billion in National Insurance payments and increase their take-home pay.
Given the significant potential savings and the role employers play in shaping the financial resilience of the UK workforce, it is important for more SMEs to become aware of and consider adopting salary exchange schemes.
