Research by Canada Life found six out of 10 small and medium-sized employers (SMEs) plan to change their approach to insurance-based employee benefits now that changes to the National Insurance regime have taken effect.
Chancellor Rachel Reeves confirmed in her Autumn Budget that employers’ NICs will rise from 13.8% to 15% from the start of the 2025/26 tax year. In addition, the level at which employers start paying NICs (the secondary threshold) has reduced from £9,100 to £5,000 per year.
Canada Life commissioned a survey of 550 HR decision-makers at micro, small and medium-sized enterprises – companies with 1-249 employees – to understand the actions that companies will likely take in reaction to this increased employer cost.
The findings suggest 61% of companies will change their approach to insurance-based employee benefits in order to cut costs. A fifth (22%) of SMEs said they will cut the employee benefits available, while 18% will change what’s offered to cut costs.
Of those questioned, 15% said they would encourage employees to pay for insurance health-related support services for themselves through salary sacrifice, while 5% of SMEs said they will stop providing any employee benefits.
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According to Canada Life, medium-sized companies with 50-249 employees are more likely to reduce or change benefits. Just 27% of micro employers (1-9 employees) questioned said they offer insurance-based employee benefits.
The research found the most popular employee benefits offered are group life insurance (29%), private medical insurance (27%) and annual health checks (26%).
One in five firms said they cover employees for group critical illness in case they’re seriously ill, while 16% of firms provided access to an occupational health service that could help them back to work following sickness absence.
‘Increasing cost pressures’
Chris Morgan, head of product and proposition strategy for protection at Canada Life, said: “Our findings show that under increasing cost pressures, many SMEs are reviewing the employee benefits they provide to find savings. Given their knowledge of the positive impact these benefits have on employee health and business productivity, workplace protection advisers are well-placed to support firms and ensure any changes are carefully considered.
“We know as an industry what a positive impact employee benefits can have on financial, physical and emotional wellbeing. It’s important that insurers and advisers work together to demonstrate this value and bring it to life for SMEs, so they can see why continuing to invest in employee wellbeing should remain a business priority.
“It is encouraging that some employers already recognise the importance of employee benefits in business success, as 39% are not planning to make any changes. Of the six in 10 who are planning changes, more than a third plan to boost awareness and engagement in the benefits provided, rather than reduce provision.”
