Payroll costs will increase in 2022. Statutory rates of pay are increasing, as are rates for statutory paid leave. National Insurance Contributions (NICs) are increasing for employees and employers ahead of the new health and social care levy. There is also the potential cost of an additional Bank Holiday to consider.
On the plus side, temporary changes to Statutory Sick Pay (SSP) may mean that you are able to recover up to two weeks’ SSP per employee who is off work due to Covid.
Find out how to plan for these changes and minimise the impact on your cashflow and profit.
1. How will the temporary increase to NICs and the new health and social care levy affect businesses?
NICs are going up for one year ahead of the new health and social care levy being introduced. The reason for this is that it will take time to implement the new levy and therefore money for the provision of NHS services and social care is temporarily being raised through increased employer and employee NICs.
1.1. NICs will increase by 1.25% from 6 April 2022 to 5 April 2023
The increase to NICs will apply to employees and employers:
- Class 1 (paid by employees)
- Class 4 (paid by self-employed)
- secondary Class 1, 1A and 1B (paid by employers)
However, the increase will not apply if you are over the state pension age.
1.2. What is the new health and social care levy and when will it start?
The new health and social care levy will be spent on the NHS and social care. It will start on 6 April 2023 when the temporary increase to NICs ends. The rate will be 1.25% i.e. the same as the temporary increase to NICs.
1.3. How to minimise the impact of changes to NICs?
In addition to the financial impact of increased NICs to profit and cashflow, employers should be prepared for disgruntled employees whose net wages will decrease. To combat this, employers are encouraged to (i) make sure that their employees are aware of the changes and (ii) review how financial support can be provided to employees.
In an ideal world employers would increase staff wages so that their staff are not financially worse off. This could be achieved by finding ways to increase profit margins. For example, by increasing prices and/or finding ways to reduce costs or increase efficiency in other areas of the business.
Another option is for employers to consider offering a salary sacrifice scheme to employees. For example, employees could sacrifice some of their salary into their employer’s pension scheme. This would reduce NICs for both employee and employer. The employee would sacrifice salary and therefore their net wage would be lower, however, they would be reducing their NICs and be saving into their pension instead.
1.4. The cost and impact of the new health and social care levy
As the new health and social care levy only kicks in when the temporary NIC increase ends, there will be no further impact on employees (below State Pension age) nor employers. The only impact will be on employees above state pension age who will not have to pay any increase in NICs but will have to pay the levy when it is introduced on 6 April 2023.
Want to talk through how these changes will impact your business with one of the experts from our Accounts or HR teams?
2. How are statutory rates of pay changing in April 2022?
As is usually the case each year, there will be an increase to the National Minimum Wage and National Living Wage rates of pay, effective 6th April 2022. Employers should plan ahead for these increases, to ensure that payroll budgets and forecasts are adjusted, and importantly, to ensure that there is no risk of being caught unawares by the changes. Take care to factor in any deductions from wages, ensuring that these do not affect the final figures.
Likewise, statutory rates of pay are increasing for Statutory Sick Pay, Shared Parental Pay, Statutory Maternity Pay, Statutory Paternity Pay, Statutory Adoption Pay, and Statutory Parental Bereavement Pay. The lower earnings limit for all these forms of paid leave will increase from £120 to £123 per week.
3. Are your employees entitled to paid or unpaid leave for the extra Bank Holiday on Friday 3 June 2022?
An additional Bank Holiday will take place in June 2022 to mark Her Majesty the Queen’s Platinum Jubilee. The Spring Bank Holiday (which normally takes place on the last Monday in May) will be moved to Thursday 2 June. The additional Bank Holiday will then take place on Friday 3 June.
Your employees may be entitled to paid time off. This will depend on the wording of each employee’s contract of employment.
We suggest that you check the wording of your employees’ contracts and communicate clearly with employees about whether or not they will be required to work on the additional Bank Holiday, whether it will be treated as an extra paid day off (awarded in lieu in the event that they are required to work), or whether they will be required to use some of their floating annual leave.
4. Temporary changes to Statutory Sick Pay (SSP) until 24 March 2022
Temporary changes to Statutory Sick Pay came into force on 14 January 2022.
The changes are part of the latest support package for businesses affected by COVID-19 announced by the Chancellor, Rishi Sunak MP, on 21 December 2021. The regulations re-introduce the Statutory Sick Pay Rebate Scheme across the United Kingdom, allowing employers with fewer than 250 employees (as at 30 November 2021) to recover up to two weeks’ Statutory Sick Pay (£192.70) for each employee who is off work suffering from COVID-19 or in self-isolation due to possible COVID-19 infection.
The scheme applies to any days of incapacity on or after 21 December 2021, including where the period of incapacity started before that date. The scheme will end on 24 March 2022, which is the last date for claims to be submitted to HMRC.
For advice and support on the above changes or any other related issues get in touch.