By Karen Thomson, head of payroll, Armstrong Watson
Employers are urged to prepare ahead of significant changes to National Insurance Contributions and the National Minimum Wage – both of which will impact heavily on their wage bills.
National Insurance
For employees, there are no changes to National Insurance Contribution (NIC) rates and a slight increase to the Lower Earnings Threshold (used for determining statutory payment entitlements) to £125 per week from £123 per week.
However, employers face significant changes.
While an increase in employer NICs in the Autumn Budget was expected– and an increase from 13.8% to 15% confirmed – businesses were not expecting the announcement that the threshold for which employers pay NICs will reduce from £9,100 to just £5,000 per annum until 2028, and then will uprate with CPI thereafter.
Figures show this will increase the treasury coffers by £23,770 million next year and roughly this amount every year after until 2029/2030.
Investment zones and freeports will continue to offer National Insurance (NI) relief, and the Veterans relief has been extended for another year.
The Employment Allowance will increase from £5,000 to £10,500 annually, with the £100,000 eligibility threshold removed.
The Chancellor stated this would mean some 800,000 businesses better off, with others equal to now, but larger businesses will feel the impact as will their employees if this results in lack of pay increases or other benefits.
For example, for an employee on the average UK wage of around £30,000, this will see an increase of just under 3% on their employer’s salary cost.
National Minimum Wage
The National Minimum Wage rates will increase across all age groups from April 2025.
For those aged 21 and over, the rate will rise to £12.41 per hour. The rate for 18 to 20-year-olds will increase to £10 per hour, apprentices and those under 18 will see the largest hike to £7.55 per hour.
While this will be welcomed by lower earners, this could result in more individuals earning over the personal allowance threshold and therefore suffering income tax, with the Chancellor maintaining the current income tax thresholds and personal allowance.
There is however a slight increase in the thresholds for the Married Couple’s Allowance for those born before April 6, 1935, and for the Blind Person’s Allowance.
Changes to employer National Insurance Contributions and National Minimum Wage will impact on wage bills potentially discouraging any expansion in workforce and/or reducing the opportunity for salary increases if additional costs have to be absorbed.
With the changes due to come into force from April 2025, businesses will need to start planning how they will navigate the challenges ahead of them.
