By Richard Askew, head of payroll, Armstrong Watson
Businesses are set to face increased costs and payroll requirements in 2024 as several changes to employment law are introduced.
Following system adjustments to accommodate for the new reduced rate of Class 1 National Insurance Contributions for employees in early January (from 12% to 10%), the start of the new financial year brings with it increases to the National Living Wage (NLW) and National Minimum Wage (NMW), income tax changes for high earners living in Scotland and new legislation for calculating holiday pay, among of a raft of other measures including flexible working and employment rights.
National Minimum Wage and National Living Wage
Perhaps the most significant change employers need to consider is the increase to the hourly rates for NMW and NLW, and the extension of NLW – now at £11.44 an hour – to include 21 and 22-year-olds for the first time from April 1 2024. Meanwhile, pay for apprentices will also increase.
This could see your wage bills increase significantly and also has the knock-on effect of more employees earning above the automatic enrolment workplace pension threshold as this has not changed. By law, employees aged 22 up to State Pension, who earn more than £10,000 must be enrolled into a qualifying scheme, and so employers may also have to factor in the costs of contributing to additional staff pensions.
Scottish tax changes
The recent Scottish Budget confirmed a new 45% Advance Rate of income tax for those earning between £75,000 and £125,140.
In addition, the Top Rate of income tax in Scotland is due to increase by 1%. Not only do the changes impact businesses in Scotland but also those across the Border who employ Scottish taxpayers.
This will increase the tax bandings in Scotland to six different levels, compared to the three levels adopted by the rest of the UK.
This means yet more payroll system changes, and potentially additional costs and resources to implement such changes, as well as more work in respect of certain tax reports that are filed with HMRC on staff benefits.
For businesses operating close to the Border, HR problems may arise as the widening gap between the two tax systems results in employees living in Scotland taking home less pay than their colleagues who live in the rest of the UK.
Changes to holiday calculation
For part-year workers and those working irregular hours, a new accrual method for calculating holiday pay will be introduced for annual leave years from April 1 2024 and will be calculated at 12.07% of actual hours worked in a pay period. The calculation is based on the 5.6 weeks statutory minimum holiday entitlement.
Ahead of the new tax year it is important to review your payroll systems and wage structures to ensure you are complying with the latest changes to legislation and avoid any technical breaches that could result in a penalty from HMRC.
For payroll advice and support please email [email protected] or call 0808 1445575.
