Government National Insurance Contribution and Dividend Rate Increase and the Health and Social Care Levy: What are the Potential Implications for Private and Public Sector Employers?
Boris Johnson recently announced that the Government would be introducing a 1.25% rise in dividend rates and National Insurance contributions to invest in and improve health and social care in the UK, particularly after the affects of COVID-19. From 2023, the contributions will be reduced back to current rates, when the new Health and Social Care Levy is to be formally introduced. This policy change brings with it various debates – so how will private and public sector employers potentially be affected by this announcement and the actions that are likely to follow?
The Impact on Private Sector Employers
First, it should be noted that the current National Insurance contributions reliefs for employers will continue to apply (including to the Levy). These include reliefs for those employing apprentices under the age of 25, any employee under 21, veterans and new employees in freeports.
However, in respect of those employees for whom a relief isn't applicable, an obvious impact of the Government's announcement on private sector employers is the natural increase in the cost of staff. Some employers may be able to absorb this increase, whereas others will likely need to cut certain costs elsewhere in their businesses to mitigate this. Reducing office space is one potential action that could be taken, with more employees now working flexibly from home, although this may not be suitable for all businesses that require workers and employees to attend the office as a business necessity.
Will Public Bodies Face the Same Implications?
Public bodies, such as schools, also pay employer National Insurance on behalf of their staff and the increase in contribution rates may well have an impact on budgets. The Government has stated that it intends to compensate these employers for the "increased cost of the Levy" although it is not entirely clear whether this includes the imminent increase in National Insurance contributions. It remains to be seen whether an exemption will be introduced or whether public sector employers will be required to contribute and subsequently receive an increased budget or a monthly or annual 'refund' of sorts. The first course of action would present a sensible solution with the second course likely to have negative short-term impacts on budgets.
It is also not currently known if and how much of the Levy will be passed on to Schools and other providers of health and social care who do not fall within the NHS, although it is likely that these details will be released over the coming weeks, months and years.
Next steps for employers
Employers in both the private and public sectors should ensure all updates from the Government are carefully considered, particularly those relating to exemptions or compensation. For any advice in relation to the wider position of employers, please contact a member of our Employment team who have extensive experience advising both public and private sector clients.
This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact Tegan Osborne-Brown or Rachael Lloyd to discuss any issues you are facing.