More employers could offer a salary sacrifice to employees after Budget as they seek to reduce their national insurance (NI) liability, experts said.

On Wednesday, in Labour’s first budget in 14 years, Chancellor has announced that it will increase the rate of NI paid by employers by 1.2 percentage points from 13.8 per cent to 15 per cent.

Rachel Reeves kept her party promise not to increase NI, VAT or income tax for “working people”. recounting communes: “Working people will not see higher taxes in their paychecks as a result of the choices they make today. This is a promise made and a promise kept.”

However, she insisted that any “responsible chancellor” would have to take “difficult decisions” to raise the revenue needed to fund public services and restore economic stability.

As a result, the NI rate paid by employers will rise to 15 per cent.

She also said the Treasury would reduce the secondary threshold – the level at which employers start paying NI on each employee’s salary – from £9,100 a year to £5,000.

The move would raise £25 billion a year by the end of the forecast period, she said, but experts warned of a hiring freeze and pay cuts as a result.

Pubs, restaurants and cafes, which rely on part-time staff, could see their fees rise by £1billion due to the changes, UKHospitality said.

Bearing the brunt of these tax rises, Mike Ambery, director of pension savings at Standard Life, said we could now see an increase in the salary sacrifice pension as employers look to reduce their NI liability.

What is salary sacrifice?

Salary sacrifice is when you give up part of your salary in exchange for money that will be put towards a pension or to hire a car or buy a cycle under the Cycle to Work scheme.

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As your salary is reduced, you pay less income tax and if the money goes into your pension, you avoid paying the NI tax you would have paid if it had all gone to salary.

This is because there are currently no NI charges on your pension money, while you pay NI on your salary.

Your employer also saves money. If an employee chooses to ‘sacrifice’ say £15,000 a year of their salary and put it into a pension, that is £15,000 that the employer does not have to pay NI at the new rate of 15 per cent.

Will this lead to an increase in people using salary sacrifice schemes?

Experts said that as a result of the changes in the Budget, more firms may decide to offer salary sacrifice schemes.

Mr Ambery said: “The Chancellor has decided not to introduce NI on pension contributions, but an increase in employer NI by 1.2% to 15% of earnings has been confirmed.

“While the resulting higher staffing costs could affect some companies’ ability to increase pension contributions, there is one potentially important side effect of pensions.

“Workplace pensions could see a boost through an increased incentive to contribute through a salary sacrifice arrangement, where employees agree to reduce their pay in return for higher pension contributions.

“Both employers and employees reduce their NI liability as a result, which will not have a greater impact on the employer.”

Gary Smith, financial planning partner and pensions specialist at wealth management firm Evelyn Partners, also expects more employers to offer salary sacrifices to offset some of that cost.

He said: “There may be an advantage for some employees in that increasing employer NI will make pension schemes that operate on a salary sacrifice basis more attractive to employers – which could mean more employees benefit from them.”

How much would employers save?

According to independent consultancy Barnett Waddingham, both employees, who pay 5% pension contributions, and employers would save if they switched to salary sacrifice:

• Employee on £35,000 salary – Additional NI for employer is reduced from £925.80 to £663.30 and the pay rise could be 1.32 per cent instead of 0.67 per cent
• Employee on £60,000 salary – Additional NI for employer is reduced from £1,225.80 to £775.80 and the pay rise could be 1.84 per cent instead of 1.19 per cent
• Employee on £100,000 salary – Additional NI for employer is reduced from £1,705.80 to £955.80 and the pay rise could be 2.14 per cent instead of 1.49 per cent

Not all employers offer salary sacrifice schemes and those on lower incomes are less likely to be enrolled in one.

Talking to and Earlier this week, ahead of the Budget, Mr Smith speculated that Ms Reeves might have announced a crackdown on salary sacrifice schemes to protect Treasury income.

He said he could have announced new legislation to stop the new salary sacrifice arrangements, or include them in employers’ NI assessments, which was done previously.

If she wanted to be “really aggressive”, he suggested she could have sought to neutralize all existing salary sacrifice arrangements, which would raise a lot of taxes, but this did not happen.

How to find out if your workplace offers a salary sacrifice scheme?

Finding out whether or not your workplace offers salary sacrifice is simple – all you need to do is check with your employer or visit the scheme’s website.

You can find the link to your scheme’s website on any email or letter about your pension.

Here you can use a calculator using a percentage of your salary or lump sum contributions to see how much you can save both as well as the employer in NI contributions making the change.