Employers are once again expected to shoulder a greater share of the cost impact of the Autumn Budget, which arguably contradicts Labour’s pledge to support businesses and grow the economy.
Impact of increases to the National Living and Minimum Wage
Central to this are the increases to the National Living and Minimum Wage rates, from April 1 2026.
The above-inflation increases of 6% and 8.5% to the respective rates for 16-17 and 18-20-year-olds will add considerable cost to employing younger workers, with many businesses unable to pass on these costs to customers.
Although the rate for 21-year-olds and over is increasing by a lower 4.1%, this will put pressure on employers to increase wages across the board.
The Government insists the rate uplift is to support workers and to help with the cost of living; however, higher wages and salaries inevitably lead to an increase in tax and National Insurance Contribution revenues, and therefore, it could be argued it is not the Government funding this support, but employers.
The key question is how will the significant increases for the younger age groups impact the employment prospects of school, college and university leavers?
Will these groups be too expensive to employ with little or no experience? And how will that impact workforces and job opportunities in the future?
The Fair Work Agency
The Fair Work Agency (FWA) is a new Government agency coming into force in April 2026 with the main aim of centralising compliance of all employment regulations.
National Minimum Wage (NMW) will be within the FWA’s remit, and it was announced a number of measures will be introduced to further tackle non-compliance with the NMW rules, including closer working with trade unions and local business groups, more regular public naming, and exploring new powers for the FWA to target individuals in leadership roles.
The extent of the latter is not yet known, but it is a concern for business owners whether this could cause them to be personally liable for NMW errors. What is certain is that NMW compliance is very much at the top of the Government’s agenda.
Businesses must ensure their processes and policies are fully compliant with NMW regulations before the Fair Work Agency starts its work in April, as we expect they will want to make an immediate impact on NMW errors, even those genuine mistakes that commonly occur.
Salary sacrifice, NIC and pension contributions
The other main announcement to affect employers is the capping of NIC relief on pension contributions via salary sacrifice arrangements to £2,000 per employee per tax year.
From April 2029, contributions above this will be subject to both employee and employer NICs, costing the employer an additional 15% in NICs.
These arrangements are common across all sectors, and this could be a significant cost burden to many employers who have been used to not paying NIC on these payments for many years.
We do not yet know how complex these restrictions will be, or whether there may be opportunities to structure pay and benefit packages to still benefit from the uncapped employer NIC exemption on non-salary sacrifice contributions.
Budget documentation mentions potential anti-avoidance measures around this change, so employers should not get their hopes up too much at this stage.
Of course, 2029 is still some way off, and there may even be a change of Government by then, which could decide to drop the idea as it doesn’t go well with supporting self-funded pensions.
