The Government has announced their first Budget since coming into power in July.
The Chancellor of the Exchequer, Rachel Reeves, announced that the Budget will put “more pounds into people’s pockets” and that the Government will “invest, invest, invest” to drive economic growth.
Although the headlines focus on a £40 billion increase in tax and increased spending on the NHS and schools, for employers, there are two major parts of the Budget that are extremely important.
What changes to national insurance were announced?
- Employers’ National Insurance contributions will rise by 1.2 per cent to 15%.
- The secondary threshold, the level at which employers start to pay National Insurance, will be reduced from £9,100 to £5,000. This means that from next April, employers will have to make National Insurance contributions for all employees who earn over £5,000.
However, the Employment Allowance will rise from £5,000 to £10,500.
It has also been announced that the £100,000 cap for Employment Allowance eligibility will be removed. Currently, employers who had National Insurance liability of £100,000 or over from the previous year, cannot claim Employment Allowance.
From April 2025, employers who meet the criteria will be able to reduce their National Insurance liability by up to £10,500.
What changes to national minimum wage were announced?
The Government has also announced that the rates of the National Living Wage and National Minimum Wage will rise. From 1 April 2025:
- There will be an increase to the National Living Wage for those aged 21 and over from £11.44 to £12,21 per hour.
- There will be an increase to the National Minimum Wage for those aged 18 to 20 from £8.60 to £10.00.
- There will be an increase to the National Minimum Wage for those under 18 or apprentices from £6.40 to £7.55.
How will the changes to national insurance and national minimal wage impact employers?
Beyond the direct increase in payroll expenses, the changes will bring additional administrative requirements, as companies adjust budgeting, payroll processes, and financial forecasting to accommodate the changes.
For those employers working within tight profit margins, these adjustments may stretch resources as they work hard to balance new costs with ongoing investment in staff and operations.
What can businesses do to prepare for and manage the challenges brought by the budget?
Employers looking to support their teams and sustain growth will need to factor these increases into business planning, potentially impacting hiring decisions and wage structures and employee benefits in some sectors.
Helen Watson
Partner | Head of Employment Law
Helen has been Head of the Employment Team at Aaron and Partners LLP for over 16 years and is an experienced Tribunal Advocate, Accredited Mediator and Workplace Investigator. Helen is also a Chartered Director and Executive Boardroom Coach.
