One in five firms may cut staff benefits as employers respond to rising National Insurance costs
Employers are increasingly considering shifting the cost of health-related support services to employees through salary sacrifice schemes, according to research conducted by Opinium in March 2025 on behalf of Canada Life.
This trend follows the recent increase in employer National Insurance contributions (NICs) from 13.8 percent to 15 percent, coupled with a reduction in the secondary threshold from £9,100 to £5,000 per year.
The survey, which polled 550 HR decision-makers, found that 15 percent of respondents plan to encourage employees to pay for insurance-based health support services via salary sacrifice.
Additionally, 61 percent of small to medium-sized enterprises (SMEs) intend to alter their approach to insurance-based employee benefits in response to the NIC increase.
Among the SMEs planning changes are:
- 23 percent aim to raise awareness of existing benefits to enhance their effectiveness.
- 22 percent plan to reduce the benefits offered.
- 18 percent intend to modify the benefits provided to cut costs.
- 5 percent expect to cease offering employee benefits entirely.
Medium-sized companies, with 50 to 249 employees, are more likely to reduce or change benefits compared to micro employers (one to nine employees), of whom only 27 percent currently offer insurance-based employee benefits.
The most commonly provided benefits include group life insurance (29 percent), private medical insurance (27 percent), and annual health checks (26 percent).
Additionally, 20 percent of firms offer group critical illness coverage, 16 percent provide access to occupational health services, and 14 percent offer group income protection.
Chris Morgan, head of product and proposition strategy, protection at Canada Life, said the company’s findings show that under increasing cost pressures, many SMEs are reviewing the employee benefits they offer to find savings.
He added that workplace protection advisers, with their understanding of how benefits impact employee health and business productivity, are well-positioned to support firms and ensure changes are carefully considered.
“We know as an industry what a positive impact employee benefits can have on financial, physical and emotional wellbeing,” Morgan said.
He emphasised the need for collaboration, stating, “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.”
Morgan noted that some employers already see the importance of these benefits, with “39 percent not planning to make any changes.”
Of those planning changes, “more than a third plan to boost awareness and engagement in the benefits provided, rather than reduce provision.”
He concluded that with the Mayfield Review underway, the need for coordinated action among government, insurers, experts, and businesses to address workforce health challenges “has never been greater.”
The increase in NICs has raised concerns among business leaders about potential impacts on employment costs and business viability.
According to The Sun, some fear that the tax hike could turn high streets into "ghost towns" as family firms may cut hours, freeze wages, or close down due to the financial burden.
As businesses navigate these changes, it remains crucial for employers to balance cost-saving measures with the need to maintain valuable employee benefits that support workforce wellbeing and productivity.
