Key changes to the National Minimum Wage and Employers’ National Insurance contributions were announced in the Autumn Budget 2024. Understandably, many employers may be wondering how the changes are going to impact upon their business.
National Minimum Wage (NMW)
The increases announced in the NMW, taking effect from 6 April 2025, are summarised as follows:
| Employee Age | NMW from 6 April 2025 | Current NWM | Increase |
| National Living Wage (21 and over) | £12.21 | £11.44 | £0.77 (6.7%) |
| 18-20 years | £10.00 | £8.60 | £1.40 (16.3%) |
| 16-17 years | £7.55 | £6.40 | £1.15 (18%) |
| Apprentice | £7.55 | £6.40 | £1.15 (18%) |
Smaller businesses which pay their staff the NMW will be directly affected by the increases; both in terms of profitability and the increased cash outflow required. It is extremely important for employers to forecast and plan to ensure the rise in staff costs is absorbed and that there is sufficient cash available to meet the increased demands.
However, the impact of the increases is not limited solely to smaller businesses. Employees of larger businesses who are paid more than the NMW may desire salary increases above or equivalent to the percentage increase in the NMW, to avoid real terms decreases to their salaries. Employers should prepare for this likelihood and set remuneration packages to ensure a balance is struck between retaining their employees and meeting the business’ profitability and cash flow targets.
It is also very important to note that the NMW does not only apply to hourly paid staff. Employers should be performing detailed reviews of their salaried staff in advance of 6 April 2025, ensuring that an employee’s annual salary divided by their working hours meets the hourly NMW for their age.
Employers’ National Insurance (ER NI)
In addition to the NMW increases, significant changes to Class 1 Employers’ NI were also announced in the Autumn Budget 2024 which will have a direct impact on many businesses.
Currently, employers pay Class 1 ER NI at a rate of 13.8% on their employees’ annual earnings above £9,100. From 6 April 2025, employers will be liable to Class 1 ER NI at a rate of 15% on their employees’ annual earnings above £5,000. However, to ensure businesses are supported through these changes, the government have announced that the Employment Allowance will be increased from £5,000 to £10,500 per annum.
The Employment Allowance is a government initiative which would allow eligible employers to reduce their overall National Insurance liability by up to £10,500 for the 2025/26 tax year. The Employment Allowance is deducted from the Class 1 ER NI liability due, to give a reduced net amount payable to HMRC. This should serve as some comfort to businesses: although employers are likely to face increased Class 1 ER NI liabilities from 6 April 2025, the amount of the Employment Allowance available to reduce the burden has increased in compensation.
Emma Harrison, Manager
Next steps
Employers should perform detailed forecasts and budgets over the coming weeks to plan for the impact of the NMW and ER NI increases. It is important to start planning as soon as possible to ensure any necessary business decisions are made in sufficient time for the changes coming into effect from 6 April 2025. For further information or assistance, please contact a member of the Accounts and Business Services team who would be happy to help you.