Last week saw our new Government’s first budget and there was a lot to take in. In this article we want to focus on the changes to National Minimum Wage, Employer’s National Insurance (NI) and the Employment Allowance and what it all means for businesses and workers.
NATIONAL MINIMUM WAGE
The Government sets a minimum amount of money that employers must pay their workers, which currently varies depending on the individual’s age. The Government’s long-term plan is to make the minimum wage the same for everyone regardless of age, which, by raising the rates for those aged between 18 and 20 years old helps to “narrow the gap” over time. This has therefore led to a significant rise of 16.3% for that age range.
For workers over the age of 21 the increase is still large, 6.7% taking the hourly rate from £11.44 to £12.21 from April 2025.
Of course, if you prefer to pay your staff based on an annual salary rather than an hourly rate, for full time workers, working a 40 hour week they are set to see an increase to just over £25,000 per year.
EMPLOYER’S NATIONAL INSURANCE
This is arguably the topic that has got most of us talking about whether it’s with your fellow directors around a boardroom table or around the coffee machine with your fellow colleagues, and rightly so.
National Insurance contributions are the UK’s largest source of revenue, behind income tax so no wonder the Chancellor has chosen this avenue to boost funding towards other services.
Currently, employers pay NI is at 13.8% on a worker’s earnings above £9,100 a year. From April 2025 this will increase to 15% and the threshold to start paying will decrease to £5,000 a year.
What does this mean in real terms….. let’s look at the maths!
Current situation (before April 2025)
Let’s say you have an employee earning £30,000 a year.
- Earnings above the threshold: £30,000 – £9,100 = £20,900
- Employers’ NI at 13.8%: £20,900 * 0.138 = £2,884.20
New Situation (From April 2025):
- Earnings above the new threshold: £30,000 – £5,000 = £25,000
- Employers’ NI at 15%: £25,000 * 0.15 = £3,750
In this example, the increase in employers’ NI contributions would mean an additional cost of £865.80 per year for this employee.
Below we have highlighted just a few ways in which this may impact your business: –
- Increased Costs: The rise in NI rates and the lower threshold mean higher costs for employing staff.
- Support for Small Businesses: The increased employment allowance can help mitigate these costs, especially for smaller businesses.
- Strategic Planning: You may need to review your budget and payroll strategies to accommodate these changes.
EMPLOYMENT ALLOWANCE
The employment allowance is a government program that helps eligible employers reduce their annual NI liability. It works by employers paying less Class 1 NI each time they run a payroll until the allowance has gone or the tax year ends (whichever is sooner).
Rachel Reeves announced that from April 2025 the allowance would increase from £5,000 to £10,500.
Here at AMR Bookkeeping Solutions we appreciate that payroll and understanding the tax liabilities can be puzzling. If you need any help understanding the new rules, calculating the impact of these on your business or simply assisting with the processing of your payroll then please get in contact with our friendly and knowledgeable team by completing our online contact form or call 01892 559480.
