Budget bump for payroll teams

The Chancellor in her first October Budget announced, amongst many other things, changes to employers’ National Insurance Contributions and an increase to the National Minimum Wage. With those changes taking effect from 6 April 2025, employers and their payroll teams need to take steps to prepare now.

The headline tax change announced in the Budget was the increase in employers’ National Insurance Contributions (NICs) from 13.8% to 15% together with a change to the threshold when employer NICs kick in from £9,100 to £5,000. 

With an additional £4,100 of earnings subject to NICs, businesses will pay an extra £615 each year for employees over the £5,000 thresholds. 

Businesses will be cushioned by an increase to the employment allowance from £5,000 to £10,500 with the upper £100,000 limit removed. This will undoubtedly help small businesses but will have limited impact on larger employers, who have called the changes a ‘tax on jobs’. 

At the same time, the Chancellor also announced an increase to the National Minimum Wage, with those aged over 21 increasing from £11.44 to £12.21 an hour and for those aged between 18 and 20 increasing from £8.60 to £10 an hour. Apprentices will see the biggest pay increase, with their hourly wage increasing from £6.40 to £7.55. 

The increase in the National Minimum Wage is also likely to see more employees enrolled into company pension schemes, particularly given the qualifying earning level has been frozen at £10,000 a year. 

Whilst these increases will be welcomed by those on the lowest wages, together with the increase in employer NICs and pension contributions it represents a considerable increased cost for employers.  

What will this mean for payroll teams? 

With changes taking effect from April 2025, payroll teams need now prepare. Steps to take include: 

• Review and adjusting payroll systems for employer NIC changes. 

• Plan ahead for changes to the National Minimum Wage. 

• Consider how changes to the National Minimum Wage will impact pensions in terms of new enrolments and increased costs. 

• Review any benefits packages to ensure they remain cost-effective. 

• Communicate changes to pay packets to staff. 

Kreston Reeves offers an experienced and dedicated Payroll team that can help your business prepare and plan for these changes. To learn how we can help your business visit our website or contact a member of the payroll team here.