How will National Insurance and National Minimum Wage changes affect employers?

In October 2024, the government’s Autumn Budget announced changes to National Insurance Contributions (NIC) for employers and National Minimum Wage (NMW). As the first Labour budget in 14 years, what will the effects be on employers going forward?

Jake Elms, Payroll Operations Manager at Westcotts, explores how these changes will impact your business.

Changes to the National Minimum Wage

The first change the government announced is an increase to the National Living Wage (for employees over 21) by 6.7%. This will increase the hourly wage from £11.44 to £12.21 from April 2025.

The government is also aiming to align both the NMW and National Living Wage (NLW) to create one minimum pay rate for those aged 18 and over. That is why they have applied the biggest increase, in both value and percentage (16.3%) for 18-20 year olds. The rate will rise from £8.60 to £10.00 per hour. Employers will need to be aware of employee’s ages and ensure their rate of pay meets the new thresholds as of April 2025.

Changes to employers National Insurance Contributions

The budget also included a reduction in the Secondary Threshold for employers’ NIC. This means employers will now pay NICs on employee earnings from £5,000 instead of £9,100. This is in addition to a general increase in the contribution rate for employers NIC from 13.8% to 15%.

Both changes are likely to put additional pressure on businesses, particularly SMEs, so the government have also announced an increase in Employment Allowance. This is to assist smaller businesses and has more than doubled from £5,000 to £10,500. The current Employment Allowance cap of £100,000 will also be removed. This means all employers with NIC over this amount will become eligible to claim the Employment Allowance. While we are currently uncertain of the restrictions for group companies or sole directors, we expect these to remain or be adjusted slightly. Once the government has released further guidance, we will advise our clients.

The Lower Earnings Limit (LEL) has been increased to £6,500 (£125 per week) without an increase in the Primary Threshold. This means the gap has reduced very slightly however we do expect the increased NLW and NMW rates to push people into the LEL for NI. This makes them eligible for some basic NI benefits, such as statutory payments and NI credits towards state pension.

What does this mean for employers?

Employers should be planning ahead. It is more crucial than ever to know your costs. For example, if pay rises are affected by minimum wage increases and the increase in NI, will it be covered by the allowance or will a liability be due? At Westcotts, we can produce estimates for you to provide the numbers you will need to prepare yourself and your workforce for these upcoming changes.

Please contact your usual Westcotts partner to discuss how best to manage these changes or Jake Elms at jake.elms@westcotts.uk or call 01392 288555. You can also contact Liz Marker Payroll Manager at Liz.Marker@westcotts.uk or on 01752 666601.