Minimising costs and maximising reward in 2025

By Ian Goodwin, Employment Tax Partner for Forvis Mazars

It seems like the impossible dream. How can you minimise employment costs yet maximise the reward offered to your colleagues? It would seem, the only option is to pay them more, and with this comes higher costs, from increased National Insurance, Apprenticeship Levy, Pension costs not to mention other associated costs (e.g. parental, sick leave pay).  

Despite HMRC tightening their compliance belts over recent years, there remain a number of approved and compliant methods to enhance the reward offered and potentially mitigate employer costs. This is going to be particularly important in 2025 due to the rising National Insurance (NIC) rates, as well as increasing National Minimum Wage (NMW), which will mean greater costs and increased scrutiny required to manage NMW compliance.  

For example, without doing anything, from April 2025, an employer with 50 employees (each on an average annual salary of £35,000) will see annual employment costs rise by approximately £47,000 due to the NIC increase alone.  

What can be done? 

The following are some opportunities businesses can consider implementing to look to reduce costs whilst maximising reward: 

Salary Sacrifice 

• Pension Salary Sacrifice is the most popular salary sacrifice arrangement. It can boost net pay and reduce employer costs by reducing the NIC payable by all parties.  

• Look at implementing other salary sacrifice arrangements for cars (electric currently has advantageous benefit in kind rates), holiday buy and cycle to work. 

• Bonus waivers into pensions can also help reduce tax and NIC, as well as provide more flexible reward options for employers to offer their employees.  

Vehicles 

• Review current fleet policy (car and van) to see if costs can be minimised and the type of vehicle is more aligned to the employee’s need.  

• If employees currently have double-cab pick-ups, take action before 6 April 2025, otherwise the tax payable will increase dramatically due to changes announced in the Budget.  

• If employees receive a car allowance and are reimbursed less than 45p per mile for qualifying business mileage, look to reclaim the NIC for both the employer and employee on the business mileage. 

Benefits in Kind 

• Review non-cash benefit provision – are those offered currently rewarding to employees or is the cost incurred not achieving the result intended?  

Trivial Benefits 

• There are tax exemptions available for providing certain non-cash trivial benefits and it will be important to see if these can be utilised. 

• Review whether PAYE Settlement Agreement calculations are being over-reported. Certain expenses may benefit from an exemption including costs connected to training and working away informal office locations. 

Other 

• Employ more apprentices – this can save employer NIC where the apprentice is under the age of 25, as there is no employer NIC to pay on their earnings (provided they earn less than £50,270 per annum). Employer NIC savings can also be made where qualifying veterans are employed. 

• For those in the hospitality industry, setting up a TRONC arrangement may help reduce NIC costs for both the employer and employee 

• Getting the right equity incentives in place, including approved arrangements where available can help recruit and retain the best talent, as well as mitigate costs in the short and longer term for all parties.  

The above gives a flavour of options available, as well as what businesses across the UK are currently looking at. There is certainly no “magic bullet” but being proactive and taking stock of the reward strategy in place now may help pay dividends further down the line. Find out more