Autumn Statement 2022: What it means for reward, employee attraction and retention

The previous updates were summarised in our articles here and here, as well as our “What’s Next?” Webinar to give commentary and considerations as to what actions and opportunities are available to employers.

Where does this Autumn Statement leave employers and employees? Well to start to establish this, it is good to be aware of the headline changes:

• A freezing of income tax and NIC thresholds and allowances until 2028;

• 45% income tax to become payable from £125,140 rather than £150,000 from April 2023;

• An increase to the National Living Wage from £9.50 to £10.42 per hour, meaning a rise of c. 9.7% of 92p per hour, which is less than current inflation and those increases announced for benefits; and

• An increase to the electric company car benefit in kind (BIK) rate by 1% from April 2025, meaning the electric BIK rate will be 3% as opposed to the current 2%. By 2027/28 the maximum for an electric company car will be 5%. This will  remain attractive for those looking to reward as efficiently and effectively as possible.

However, some things related to reward did not change:

• The reduction in NIC rates from 6 November 2022 – this remains in place, meaning employees will pay NIC at 12% and 2% respectively and employers at 13.8%;

• The enhancement of the attractiveness of CSOP arrangements was not altered – meaning that from April 2023, qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.

So, what should employers and employees be focussing on?

Senior Employees

A lot of senior employees will be concerned about their pay given the 45% tax rate now coming in at £125,140 rather than £150,000. In practical terms, this means they will pay an extra £1,243 in income tax each year if earning £150,000 or more.

However, it is worth looking more broadly at this. In April 2022, the NIC rates increased by 1.25% percentage points across the board. This meant that an employee on £150,000 paid an extra £1,751 than they did the tax year before. However, with the reversal of the NIC increase and also the adjustment to the threshold as to when employees start paying NIC, this has saved that employee approximately £2,000 overall, meaning that the change to the 45% threshold rate has not created a significant difference from where this employee was in April 2022. In fact, they remain slightly better off.

Recruitment will remain challenging at senior levels and employers will feel the pressure to increase pay given the tax headlines. This can be managed by looking at other options, as we have highlighted in previous articles including electric company cars, pension salary sacrifice and share scheme arrangements. These can help reduce costs, enhance retention and recruitment.

The National Living Wage interaction

The National Minimum and Living Wage rate increases apply from  April 2023 for each age category by approximately 9.7% - 10% for all (£10.42 for those aged 23 and over).

Employers will need to consider how they balance pay increases across their workforce and perhaps consider whether they can increase everyone’s pay by at least 10%.  Alternatively there will be a need to consider how to motivate employees where they cannot pay more?

The answer may depend on how innovative they can be with reward looking beyond cash at benefits like electric cars, pension contributions, salary sacrifice, life assurance, share schemes, training, medical insurances, cash discounts, employee reward programmes etc. How these are then communicated may help enhance retention and attract key talent. One area we are helping organisations with here is making the environment and sustainability a key pillar of reward strategy. This could range from providing electric notepads rather than paper, to helping employers fund solar panels and more cost efficient and carbon friendly home energy use, especially where hybrid working policies are in place.

What to do next

Employers and employees need to take a moment to reflect on the whole flurry of announcements we have had over the last few months and focus on those that now matter.

They need to look at the detail and establish clear communication and reward strategies to help employees fully understand their own position, as well as help save costs for all parties where it is possible.

Find out more

Join us for a panel discussion on Monday 21 November at 10am where we will be giving our reaction to the announcements made, including analysis from Mazars Chief Economist, George Lagarias.

Register here