Wages and NI costs increase

National Minimum Wage/National Living Wage

Labour has pledged to abolish the current NMW/NLW (National Minimum Wage/National Living Wage) age bands, in favour of a single adult rate. However, this will be achieved incrementally. As a first step, the current rate of £8.60 for staff aged 18-20 years will be increased by a huge 16.3% to £10 per hour in April 2025. The rate will further increase in subsequent years to reach parity with the NLW.

The NLW will increase by 6.7% to £12.21 per hour from April 2025. This rate is payable to all staff aged 21 years or over.

If you are operating a salary sacrifice scheme, you should review employee eligibility where pay increases may not be in line with the NMW/NLW rate increases.

Employer National Insurance

The rate of Employers National Insurance will increase from 13.8% to 15% from April 2025. 

The second hit to employers comes with lowering the secondary threshold which means employers will start to pay National Insurance on employees earnings from £5,000 instead of the current £9,100 threshold. 

At the same time, the government is increasing the Employment Allowance (EA). The current EA gives employers with NI bills of £100,000 or less a discount of £5,000 on their employer NI bill. From April 2025, the EA will rise to £10,500. Moreover, the government will expand the EA by removing the £100,000 eligibility threshold so that all eligible employers now benefit.

These changes are attracting more employers to consider salary sacrifice schemes, such as pension contributions. By reducing salaries, both employees and employers are subject to lower National Insurance contributions.

Businesses should plan for these changes. If you would like a report illustrating the cost implications to your business or to discuss salary sacrifice schemes, please get in touch.