UK’s rising benefit costs driving employer strategy shifts, survey shows

Rising benefit costs are now the biggest issue shaping UK employers’ benefit strategies. New research reported by Employee Benefits found that 64% of employers see rising benefit costs as their top challenge - up from 57% in 2023 - and many are now reviewing how to get better value for their spend. That includes rebalancing budgets, expanding employee choice, and switching to better-value providers in areas like health, pensions, and risk. Crucially, it also means revisiting how benefits are structured to maximise tax efficiency. We ask a tax expert about how employers might achieve those efficiencies. 

This is research by Willis Towers Watson based on responses from more than 5,500 employers in over 50 countries, including 327 UK employers. It found that three-fifths (60%) plan to tackle high costs by adopting navigation solutions to support employees using benefits, realign spend across benefits (57%), enhance value, or switch to better-value providers across health, retirement, and risk benefits.

The background to this is the steady rise in requests for financial support from employees. Surveys last year showed that more than two-thirds of HR professionals had seen a noticeable increase in people asking for help, whether that’s financial education, cost-of-living bonuses, or simply better use of existing benefits. At the same time, most employers are facing cost pressures of their own, meaning there’s little spare cash to offer direct financial help. That’s where the legal and tax structuring becomes critical.
And it’s even more important now, following the increase in employer National Insurance contributions that took effect in April 2025. From that date, employer NICs rose from 13.8% to 15%, a seemingly modest change, but one that significantly increases the savings available when benefits are delivered through a salary sacrifice arrangement. Because those schemes reduce salary, they also reduce the NICs payable - so any saving you can make through smart structuring is now worth slightly more than it was before. It adds an extra incentive for employers to revisit how benefits are set up and to look again at salary sacrifice for pensions, electric vehicles, and other eligible perks.

So, reviewing your employees’ benefits to see if any of them they could be offered in a more tax efficient way. Tax specialist Chris Thomas has been helping a number of clients with that exercise and earlier he joined me by phone from Birmingham to discuss the range of benefits that could, potentially, be adjusted to save tax and so help employees’ finances:

Chris Thomas: “The first one is making sure that people are making the most of pension contributions. In particular, if you've got employees who are making contributions from their net-after-tax-pay then you and they are missing out on some savings that could arise if you were to switch to a salary sacrifice model which, obviously, quite a few employers already do, but not all. It doesn't necessarily need to be a fully-fledged salary sacrifice scheme, which I know does put some employers off a bit. It can be relatively simple, but the advantage of it is that if they give up the relevant amount that they would normally pay in as contributions then, essentially, if it's paid directly as an employer pension contribution instead, you've got a saving of both employer NIC and employee NIC and some employers will choose to share their employer NIC saving so that creates a further benefit for the employee as well.”
Joe Glavina: “Isn’t the problem with salary-sacrifice that, by sacrificing some of your salary, you end up with less take-home pay which is not what you want in a cost-of-living crisis?”

Chris Thomas: “Well, I think for other forms of salary sacrifice, you're quite right, Joe, that the implication of salary sacrifice is you are reducing your salary, and you are getting something else instead. Now, I think the point there is if the thing that the employee is getting instead is something that they would want, they could be getting it in a much more tax efficient way, and in a way that is much cheaper overall to them than they otherwise would. We are not necessarily talking about the very lowest paid employees here but, perhaps, the more middle earners. A good example of that would be electric cars which is really quite a tax advantaged option for an employer to provide. The way that essentially works is the employee enters into an a salary sacrifice arrangement to replace, essentially, fully taxable or NIC-able salary, with the benefit of the use of a car and obviously, we all know that a lot of electric cars are expensive, not everyone can afford to go out and buy one, but for people who are, perhaps, looking at wanting to do that, it's a way of making it affordable for them to do so in a very tax efficient way for both them and the employer - and it also fits in, and I know that's it’s not the purpose of this directly, but it fits in with the whole ESG and corporate responsibility agenda very well as well. So, it is a bit of a win-win from that perspective.”

Joe Glavina: “Anything else on the list Chris?”

Chris Thomas: “So, I think it's also worth talking about things that, perhaps, are easier to roll out for everybody and don't involve having to give up any benefit at all and a good example of that would be providing free or subsidised meals to employees. That’s something that was, I think, done quite commonly many years ago, but as the become a lot less popular, perhaps, in recent times but it is something that actually can be quite a valuable benefit for employees. So, if you've got a staff canteen, as a lot of employers do, it is worth thinking about – could you provide free meals, or subsidised meals, or vouchers, that your employees can use there? So long as that's available to everybody, again, you can provide that without any tax, without any national insurance contributions arising on it? Yes, it's fairly small-scale on any one occasion but if you've got people who are using the canteen regularly, that could stack up to a few hundred pounds of savings over the course of a year, and it's the sort of perk, as well, I think, it's very relatable to employees, very easy to communicate, it’s perceived as a very accessible and attractive benefit. So, that, I think, is something that is worth thinking about if it's not something that you are currently doing.”

Chris and the Tax team have been working closely with a number of clients to help them structure their benefits in a more tax-efficient way. If you’d like help with that please do get in touch with Chris – his details are on the screen for you – or alternatively you can contact your usual Pinsent Masons adviser.