The Autumn Budget 2024 introduced by Chancellor Rachel Reeves brings significant changes for UK employers, particularly around National Minimum Wage (NMW) and National Insurance contributions (NICs). Below is an outline of the key changes in relation to NMW and NICs and their potential impact on businesses.
- National Minimum Wage (NMW) Increase:
- The National Minimum Wage will rise from £11.44 to £12.21 per hour for all workers aged 21 years and over, effective from April 2025.
- Labour has also pledged to abolish the tiered NMW system, replacing it with a single adult rate. This will be phased in gradually, but exact details and timelines are still to be confirmed.
- Employers' National Insurance Contributions:
- The Budget confirmed that the rate of Employers National Insurance will rise from 13.8% to 15% in April 2025. This means that many businesses will be required to pay a larger portion of NICs, increasing the cost of employment which may prove challenging for many employers.
- Currently, employers are only paying NICs for staff earning more than £9,100 per year. From April 2025, this threshold will be reduced, and employers will start to pay national insurance on a workers' earning from £5,000.
- Employment Allowance Increase:
- The employment allowance will more than double from the current rate of £5,000 to £10,500. This will be particularly beneficial to small businesses and is designed to offset the impact of rising NI costs.
- Income Tax:
- The current bands that apply to employee income tax have been frozen since 2021 and will remain frozen until April 2028.
The potential impact on employers
With the National Minimum Wage having only recently been increased in April 2024, employers are looking to face further substantial wage cost rises according to the changes mentioned above. This may particularly impact sectors like retail and hospitality, where the NMW is widely paid. For example, this could lead to issues where the wage difference between staff and their managers narrows, leading to potential retention challenges as employees may feel they are not being sufficiently rewarded for taking on additional responsibility.
In addition to the above, the increase in Employers' National Insurance contributions to 15% and the lowering of the threshold for paying NI to £5,000 will increase employers' overall payroll costs. Employers will have to factor in the higher costs, particularly for employees who earn just over the threshold, which could have a significant impact on businesses operating on thin margins.
Small businesses will benefit from the Employment Allowance increase and this allowance may mitigate some of the rising costs of National Insurance. However, many small businesses may still feel the pressure of the increased wage and NI costs and may still need to forward plan for the changes that will be introduced.
It is noteworthy that alongside the changes above, the Employment Rights Bill will also be introduced, adding further complexity to the regulatory environment. Employers should ensure they are up to date on these changes, as non-compliance could result in legal challenges or penalties.
Employers are advised to proactively review their financial planning, payroll processes, and recruitment strategies. Taking a proactive approach will help ensure compliance and mitigate any potential impacts on your operations.
For tailored solutions and expert assistance with employment-related matters, our experienced Employment Law specialists are here to help. We understand that every business is unique, and we are dedicated to delivering solutions that meet your specific needs. Call us today for guidance at 0141 221 1919. We are here to support you in navigating these changes effectively, and we are committed to your success.
