Wednesday marked a change in UK fiscal strategies as it was the first Labour budget in 14 years. It was also momentous, as for the first time in 500 years, the UK budget was delivered by a female Chancellor.
Rachel Reeves has set out the budget for the years to come, impacting both employers and employees alike. Tax rises and cuts were expected, and here are the key points for social sector employers to consider in respect of their workforce.
Minimum wage increases
From April 2025, the National Living and National Minimum Wages will increase as follows:
- 21 years old and older from £11.44 to 12.21
- 18 to 20 year olds from £8.60 to £10.00
- Apprentices from£6.40 to £7.55
Organisations should keep these increases in mind when setting budgets, or tendering for contracts or grants, and ensure that their payroll is updated in time to comply with the changes, as failure to do so could result in a fine of up to £20,000.
It is good practice to inform those affected by the change that their hourly rate will change from April 2025.
National Insurance
An often forgotten tax, employer’s National Insurance (NI) is a payment made based on someone’s salary directly to HMRC by the employer.
As expected, employer NI contributions will increase from 13.8% of wages to 15%. The threshold from when Employer’s NI contributions apply will be reduced from £9,100 to £5,000 per year, meaning that the 15% will be applied to a greater portion of employees’ salaries than before.
To support smaller organisations the government has increased employment allowance from £5,000 to £10,500, which may benefit some social sector organisations to reduce their overall NI liability.
This change will likely come into effect from April 2025, so employers have some time to prepare their budgets for this increase in NI contributions.
For employees, their NI contribution rate is unchanged. However, the income tax band thresholds will remain the same until 2028, which means that more people may pay tax on their income or may be pulled into higher tax brackets. Labour has stated in their budget that this will rise in line with inflation after 2028.
Other changes announced
The budget has many more changes, but not all have a direct effect the workforce.
Earlier in October the Government announced their Employment Rights Bill where they have set out many changes planned for the coming years, and you can read more on our blog: link.
What next
Organisations should prepare their budgets as the NI hike will effect all employers significantly from 2025 onwards.
If you have any questions, or you would like to know more, do get in touch with our consultants at [email protected].
