National Insurance – a short history and an update on this year’s changes.

National Insurance isn’t usually something we give much thought to apart from when we see it as another deduction on our payslips but as it has been in the news a bit lately, we thought it deserved a blog post all of its own.

Origins of National Insurance

The concept of National Insurance was first introduced through the National Insurance Act 1911 when for the first time, workers would be able to claim benefits based on contributions they and their employers had made. Employees had a card to which stamps were added that their employer got from the Post Office to prove their contributions. If they left that job, they took those cards to their new job and that’s why we still say ‘getting your cards’ when someone leaves a job and ‘paying the stamp’ about National Insurance in general.

The National Insurance scheme that was introduced in 1911 offered pensions, health and unemployment benefits for the first time and undoubtedly made a real difference to peoples’ lives, especially older widows.

Then, even while the Second World War was still raging, the idea of expanding National Insurance was first proposed and in 1948, the new Welfare State was launched which it was hoped, would help everyone of all classes from cradle to grave. This included, of course, the establishment of the National Health Service.

What is our National Insurance spent on?

National Insurance contributions are ringfenced for welfare spending and can’t be used for general government expenditure. As has been discussed a lot recently, it is used for funding the NHS and health and social care but also covers benefits such as Universal Credit, Statutory Sick Pay and entitlements such as the UK State Pension.

We all have a National Insurance Number (NINO) and our individual contributions are credited to our account as some of the benefits such as the State Pension are contributory; i.e. you can only claim them if you have previously contributed a sufficient amount.

Classes of National Insurance deductions

There are 4 main classes of National Insurance deductions:

  • Class 1: payable by both employees and employers
  • Class 2: a fixed weekly amount paid by the self-employed
  • Class 3: voluntary top-ups for those who have missed some contributions
  • Class 4: payable by the self-employed on a portion of their profits

National Insurance in 2022/23

Many of us will have already seen our National Insurance Contributions increase since April 2022. The rate increased by 1.25 percentage points to 13.25% in April 2022 with the plan being that the additional revenue would be placed directly into the NHS.

From April 2023, this increase will be renamed the Health & Social Care Levy which has been designed to deal with the backlog of patients waiting for treatment after the pandemic and to bring extra funds into the care sector.

Currently, anyone earning under £9,880 does not pay any National Insurance but that threshold will increase to £12,570 on 6th July 2022 so it will have parity with the Income Tax threshold.

That means that although many are paying more National Insurance now, they should see their contributions fall again in July.

If you have any questions about National Insurance, the employers’ contribution or about which Class you should be paying, just get in touch.

Let’s go on holiday

We’re in that special time of year where it feels like there is always a holiday on the horizon – we’ve just had Easter, May Day Bank Holiday is just around the corner and then it’s not long until the special long Jubilee weekend at the beginning of June.

We all appreciate our paid time off but as an employer, what are your obligations to your employees so they can enjoy time away from work?

Statutory leave entitlement

Full time workers are entitled to at least 28 days holiday – or 5.6 weeks per year which includes bank holidays. In a normal year, we get 8 bank holidays so full timers get a minimum of 4 weeks holiday each year plus bank holidays.

Part time workers entitlement is calculated on a pro rata basis and this can be quite tricky to work out – they are still entitled to 5.6 weeks but the number of days they are away from work is calculated based on how many days they would normally work. So they still get 5.6 weeks of holiday but not as many as 28 days. Luckily, there is a handy leave calculator here to make it easier.

The calculator is also useful if you have an employee who is full time but has started mid-way through your annual leave year and so, in their first year of employment, isn’t entitled to their full allowance.

Flexible workers

If your employees don’t work regular hours or are on a zero hours contract, they still accrue holiday entitlement, but it is calculated in a different way. They ‘earn’ holiday time for every hour they work and can then chose to take that holiday when they want.

Holidays over legal minimum

Employers are free to reward their employees with as much paid time off as they want. In fact, some large employers are even offering employees unlimited holiday time and trust their teams to use that benefit responsibly.

Additional holiday days can also be used as an incentive or reward for service – an employee might get an extra day’s holiday each year as they pass their anniversary of joining the company.

Holiday policies within your organisation

There are a number of other considerations regarding holiday and holiday pay that businesses need to address and ideally, write policy for.

A key one is around the amount of notice that is required before any holiday is taken. If a worker wants just one or two days holiday, the notice required for that might not be very long. On the other hand, if they want to take a fortnight’s summer holiday, especially if it’s at a popular time for holidays, then more notice might be needed. It’s also important to remind your employees that they shouldn’t book a holiday until they have had their leave signed off.

Sometimes an employee won’t have taken all of their entitled leave in the year and so they have days left over. Whilst this should be discouraged, sometimes it’s unavoidable and so there should to be a policy around how many days can be carried forward to the next year. Typically, this might be no more than 5 days – an amount that won’t cause too much disruption but also gives workers the chance to save up some leave for something special like a honeymoon.

It is also possible, with agreement, to pay staff for untaken leave. Again, there should be a policy for this and the number of days kept to a minimum; time away from the workplace is so important for physical and mental health that swapping it for money doesn’t help anyone.

We hope you all enjoy the bank holiday weekend and any other holidays you have coming up. If you need any help with holiday pay, or anything connected to payroll, just get in touch.

The Chancellor’s Spring Statement

Normally it is the Chancellor’s Autumn Budget that is much anticipated but this year, with the increase in the cost of living, huge fuel and utilities price increases as well as the impact of the war in Ukraine, his Spring Statement also generated much interest.

Rishi Sunak delivered his statement to Parliament on Wednesday and here are some of the key points for employers and employees.

National Insurance

Although he didn’t scrap the planned increase in NICs that’s due to come into force in April (you can read about that here), he did announce another big change to National Insurance which is that the threshold for paying it will increase by around £3,000 to £12,570 in July 2022. That puts it on par with income tax and means people earning £12,569 or less won’t now have any taxation deductions taken from their pay packet after the change comes into effect.

That should help mitigate against the rate increase and so should mean most employees won’t see too much of a difference although employers will still be paying a higher Employers’ NIC rate.

Fuel Duty

The sudden and dramatic increase in petrol and diesel prices we have seen recently have affected all of us. Relatively low paid workers such as carers who use cars to get around have been especially hard hit and so the 5p reduction in fuel duty for 12 months will be welcome.

It should mean that we will see an immediate reduction in price at the pumps from 6pm on Wednesday.

Household Support Fund

The Chancellor has doubled the size of the Household Support Fund by adding £500m to the pot. The fund is administered by local authorities and here in Cornwall, £4.5m has already been provided and is being distributed by the council, charities and other partner organisations to support those in need. Although the figures haven’t been confirmed, we can therefore expect a further £4.5m to make its way to us.

Have a look at this webpage for more information and links to financial crisis help and support: https://www.cornwall.gov.uk/benefits-and-support/household-support-fund/

Employment Allowance

Employers whose Class 1 NIC liabilities were less than £100,000 in the last tax year can claim Employment Allowance to offset against National Insurance liabilities they have now. It is currently set at £4,000 but it was announced today that this will be increased to £5,000 immediately.

In the same way the NIC threshold was raised to mitigate against the tax increase for employees, this will help some employers reduce the impact of the extra taxation.

To check whether your business is eligible for the Allowance, click here: https://www.gov.uk/claim-employment-allowance

Future tax plans

The Chancellor also announced a plan to reduce the rate of income tax by 1% to 19% in 2024 and that he would be looking at a range of measures to encourage greater productivity, innovation and training with businesses and employers.

There was also a startling statistic that it is predicted there will be 400,000 fewer people in the workforce in the coming years compared to before the pandemic, caused by a combination of early retirement, migrants returning home and ill-health. That means the pressure on recruitment and managing staff shortages isn’t going away and employers will have to work hard to attract employees to their businesses.

As always, if you have any questions about how the measures in the Spring Statement will affect your payroll or employees, just get in touch.

Showing your employees some love

As February is the month of love, we thought for our blog this month, we’d share some ideas on how employers can show their employees some appreciation, which can boost employee satisfaction, make them feel valued and reduce staff turnover. It goes without saying that being happy at work, working in a comfortable environment, feeling supported day-to-day and being appropriately paid should be the first consideration for all employers but if that’s all in place, here are some more ideas.

Flexible working

If there’s one thing we’ve learnt from the pandemic, it’s that flexible working and hybrid working models are effective and are appreciated by employees. It gives them the chance to work around family responsibilities, outside interests or even what time of day they perform best – are they larks or owls?

If your business allows, break away from the 9-5 and consult with your employees on developing a flexible working policy for them.

Free food

Some businesses, such as Facebook, provide three meals a day for employees but we’re not suggesting everyone needs to go that far. This benefit could be as simple as placing a few boxes of cereal in the kitchen for those who didn’t get time for breakfast, keeping a steady flow of tea and coffee going during the day or arranging a regular delivery of fruit for everyone to enjoy.

An occasional staff lunch is always welcome; arrange a pizza delivery and get everyone to leave their desks for a while for a bit of downtime and networking.

Staff discounts

Can you arrange for local businesses to give your employees discounts just for working for you? Corporate memberships at gyms are really common but also consider veg box delivery companies, local cafes & restaurants, travel agents or even new car dealerships.

Paid time off

Many businesses offer their employees extra time off for special occasions. A day off on their birthday is a nice gesture but you could also think about times where some time off might reduce stress such as when moving to a new house or in the lead up to a wedding.

Another option might be to offer employees paid time off to pursue their outside interests; for example, one day a month to volunteer for a charity that is close to their hearts or to attend a class.

You should also make sure your paid maternity, paternity and adoption leave policy is as good as it can be as well as the policy for child care or other caring responsibilities.

Saying thank you

Do you say a simple but heartfelt ‘ thank you’ to your employees often enough? It’s a good idea to keep a note of peoples’ work anniversaries so they can be marked; it doesn’t have to be a special or even an especially long one – you can mark a 1st anniversary as well as a 30th.

If someone has put in extra effort, achieved something significant or supported a colleague, saying thank you at those points is a good idea too. You could combine this with the pizza lunch and use the achievement as a reason for the special occasion.

Health benefits

Private medical insurance, health plans, dental plans, access to 24/7 GP support or mental health care are really valuable benefits and will give employees real choice and flexibility when managing their and their family’s health, especially now when the NHS is under so much pressure.

There are many options available for this type of benefit and it is worth talking to a specialist about it before making any decisions, especially as this benefit is taxable.

We’d love to hear from you

If you have any questions about employee benefits, how they are taxed or how they might affect your employee’s take home pay, just get in touch and we can give you some more information.

About Me

My name is Kellie Burslem T/A Pixie Payroll Services, I am a local Payroll Bureau based near Helston, Cornwall. I provide a reliable, professional service at a competitive price.

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