SMEs missing out on £2.7 billion in National Insurance savings

31 Jul 2025

Most UK SMEs are not using salary exchange so are missing out on a potential £2.7 billion in employer National Insurance contribution (NIC) savings, according to insurance broker Howden.

Using salary exchange to boost pension contributions and after-tax pay would also generate £1.8 billion in employee savings, Howden's Employee Benefits research found.

The research found that, in response to the NICs increase, 33% of SMEs are passing costs on to customers, which could lead to inflationary pressures in the wider economy. Meanwhile, 32% are freezing hiring and 28% are delaying planned salary increases.

Only 29% of SMEs currently use salary exchange (also known as salary sacrifice) for pensions, which Howden says has the potential to deliver valuable savings at a time of critical economic pressures.

The research reveals a significant knowledge gap: 36% of SMEs are aware of salary exchange but have not explored it in detail, and 17% are not aware of it at all.

Cheryl Brennan, Managing Director of UK Employee Benefits at Howden, said: 'At a time when SMEs are under immense financial pressure and employees are struggling with the cost of living, salary exchange is a powerful, underused tool.

'Our research shows that the majority of SMEs are missing out on significant savings that could be reinvested into their people and growth.'