How the Autumn Budget changes affect employers

All businesses will need to consider the impact on their profits and cashflow in both the short and long term. With the only cushion available being an increase in the Employment Allowance, we look at how the changes could affect your business and how you can mitigate the changes. 

For those businesses that have already considered their budgets and financial forecasts for the year to come, looking at how the changes could impact on those figures and how the business can manage the increased cost will be key. 

What was announced in the Budget? 

In the Autumn Budget, it was announced that the following changes will all be introduced from April 2025. 

• The rate of employers’ NICs will increase from 13.8% to 15% 
• The threshold where employers pay employers’ NICs on each employee’s salary is reducing from £9,100 to £5,000 a year. 
• The Employment Allowance will increase from £5,000 to £10,500. 
• Removal of the £100,000 eligibility threshold, expanding this to all eligible employers with employers’ NICs bills from 6th April 2025. 
• The National Living Wage (NLW) (payable to those aged 21 and over) will increase to £12.21 per hour. 
• The National Minimum Wage (NMW) (payable to those aged 18-20) will increase to £10 per hour. 

How will the Budget changes affect my payroll? 

How you will be affected by these changes will depend on the unique circumstances of your business. For example, the following factors will need to be considered: 

• Number of employees 
• Number of employees paid at NLW/NMW, or currently below the new April ‘25 rates 
• If you have one employee who is a director 
• Number of employees paid above the secondary NIC threshold 

If you have a lot of employees paid minimum wage, you will need to budget for an increase in their pay from April 2025, as well as budget for the increase in Employer NICs. Of course, if you are eligible for the Employment Allowance some or all the increase in your employers’ NIC bill will be covered by this. 

If you have employees who are paid more than the new NMW rates, you’ll need to consider the impact of the increase in Employers’ NIC rate and whether this is covered by the increase in the Employment Allowance. 

If you have one employee paid above the secondary threshold, who is also a director, you won’t be able to claim the Employment Allowance, so particular care is needed in respect of single director/employee companies. 

 

What can I do to mitigate my NIC liability as an employer? 

Businesses need to take a step back and look again at their finances and how these additional costs can be funded. We recommend that you do not put this off. The sooner you review your circumstances, the better prepared you will be when the changes take effect. 

Speak to your accountant today to see how this could impact your business. Your accountant will be able to prepare cashflow forecasts and budgets for you and offer some practical advice. 

The first step businesses should take is to run the numbers so they can project forward how these changes will impact them. 

In many cases, businesses will have no choice but to pass these additional costs onto their customers by increasing prices. Businesses may also restrict wage growth and pass the tax rise onto employees. 

Many businesses will have little time to make changes and where it is not possible to restrict wage growth or pass these costs on to customers, profit margins will be squeezed.  

Some businesses may also be forced to consider their overall staff budgets and must make some tough decisions. 

Other considerations for employers

Some employers have offered salary sacrifice pension solutions to save NICs for their staff and themselves.  

Where this is offered and employees opt to divert part of their wages into their employer salary sacrifice scheme, both employer and employee NIC can be saved. Salary sacrifice can be a way to mitigate payroll costs and provide a morale raising boost to employee satisfaction and allow NIC savings to pass to their pension pots.  

Some employers may decide to start offering a salary sacrifice scheme to make Employer NIC savings. It should also be noted that some employers, who currently offer a salary sacrifice scheme, pass the Employer NIC saving to their employees. As a result of these changes, some employers may look at holding back some or all of this Employer NIC saving to help fund the increased payroll costs. Operating a salary sacrifice scheme introduces additional administration and potential legal costs to draft revised employee contracts, so this may not be an available option to all employers.  

Although employers may have little choice but to look for ways to make savings to safeguard their business, if the Budget increase results in less money being saved into pensions, this could be detrimental to long-term pension savings.  

Businesses will need to consider what impact this will have on their workplace, particularly in terms of staff morale as this does affect their overall remuneration and benefits. The communication of any changes with employees will be key in getting their ‘buy-in’.  

Our Employer National Insurance Calculator 

We have created a calculator to help you understand the impact of this change on your business. The calculator models the increase in Employer National Insurance Contributions (NICs) in respect of an individual employee and is based on their gross monthly wage. 

You will just need to enter your employee’s monthly wage, and the calculator will model the NIC costs for 2024/25 and 2025/26 and show you the difference in costs between the years. 

 

Examples of the impact of the Autumn Budget changes 

Businesses of all sizes will be affected by these changes, and for most the effect will not be insignificant. Here are some examples of how the changes could impact on your business. 

Firstly, let us look at the impact of the change on a single employee who works 120 hours per month at National Minimum Wage (NMW). The employer also contributes 3% to the employee’s pension. No adjustment has been made to the Employment Allowance and all figures are rounded and approximate. 

	2024/25	2025/26
Monthly wage - 120 hours at £11.44 / £12.21	£1,373	£1,466
Less monthly Employers’ NI allowance (secondary threshold)	-£758	-£416
Wage subject to Employers’ NI	£615	£1,050
Employers’ NI at 13.8% / 15%	£85	£157
Employers’ pension at 3% (in excess of £520)	£26	£28

The total monthly cost for one employee to the employer would be: 

	2024/25	2025/26	Increase
Employee wages	£1,373	£1,466	£93
Employers’ NI	£85	£157	£72
Employers’ pension Total monthly cost	£26	£28	£2
Total monthly cost	£1,484	£1,651	£167

In the above example, the employer faces an 11% employee cost increase from April 2025. 

Next, let’s look at the impact on a business with 10 employees, based on the scenario above. 

From April 2025, the increase of £167 each month will need to be factored into budgets. The business can therefore expect additional costs across their 10 employees of almost £17,000 for the year. 

If the business is eligible for Employment Allowance, their annual Employers' NIC bill may be reduced by the increase of £5,500. Net additional costs, because of Budgetary changes, are therefore approximately £11,500. 

Finally, for a business with three employees, based on the example above, again, the monthly increase of £167 per employee per month, means the business can expect additional costs across their three employees of over £6,000 for the year. 

If the business is eligible for Employment Allowance their annual Employers' NICs will reduce by the increase of £5,500. Net additional costs, because of Budgetary changes, are therefore negligible. 

How we can help 

If you are employing staff for the first time or need help understanding the changes announced in the Autumn Budget 2024, we can work with you alongside our partners to help you negotiate the employment law and ensure you are doing everything by the book. Speak to us today on 01942 938 212 or contact us and we will get back to you. 

Date published 8 Nov 2024 | Last updated 8 Nov 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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