The Chancellor of the Exchequer’s Autumn Budget 2024 has introduced significant changes to employment-related legislation, particularly concerning the National Living Wage and employers’ National Insurance contributions. These modifications will have substantial implications for businesses across the United Kingdom.
National Living Wage reforms
New rate structure
From April 2025, employers must implement the following mandatory wage increases:
- Workers aged 21 and over: £12.21 per hour (increased from £11.44)
- Workers aged 18-20: £10.00 per hour (increased from £8.60)
- Apprentices: £7.55 per hour (increased from £6.40)
What are the legal implications?
The 6.7% increase for workers aged 21 and above represents a significant step towards implementing a comprehensive living wage framework. Of particular note is the substantial increase for younger workers, with 18-20-year-olds receiving a 16% uplift, signalling a move towards wage rate consolidation across age brackets.
National Insurance modifications
Key changes
- Employer contributions
- Rate increase from 13.8% to 15% effective April 2025 – This means that many businesses will be required to pay NICs on a larger portion of their payroll, increasing the cost of employment which may prove challenging for many employers.
- New lower earnings threshold of £5,000 (reduced from £9,100) – meaning that employers will now have to start to pay national insurance on a workers’ earning from £5,000.
- Employment allowance
- Enhanced to £10,500 (previous threshold: £5,000) – This will be particularly beneficial to small businesses and is designed to offset the impact of rising NI costs.
- Estimated to exempt 865,000 employers from NI contributions
End of income tax threshold
The freeze on income tax thresholds will conclude in 2028 with future updates expected to align with inflation, marking a return to progressive adjustments.
Workforce development funding
The Government will be launching the “Get Britain Working” initiative. They will be investing £240 million to support workforce development. This will focus on upskilling disabled individuals and those with long-term health conditions. This initiative will give many who have not been able to return to work the opportunity to do so.
This initiative will bring together health, employment, and skills services to improve the support available to those who are inactive due to ill health and help them get back to work.
The Government will also invest £115m in 2025-26 to deliver Connect to Work, a new supported employment programme matching people with disabilities or health conditions into vacancies and supporting them to succeed in their new roles.
Enhanced employee protections and leave benefits
The budget reiterated commitments to enhancing protections against unfair dismissal, workplace bullying, and improving access to parental leave.
Abolishment of non-domicile tax status
Effective April 2025, the Government will replace the non-dom regime with a residence-based taxation system. Previously, non-domiciled UK residents could elect to pay UK tax solely on their UK-based income and on foreign income only when it was remitted to the UK. The new residence-based taxation system may affect the attractiveness of the UK to international talent, as newly arriving foreign workers will now be taxed on global income. Employers recruiting from abroad may need to reconsider relocation packages and offer tax-related support to mitigate the impact of these changes.
Compliance requirements
Immediate actions for employers
- Review and update all employment contracts to reflect new wage rates
- Audit payroll systems to ensure compliance with modified NI contribution calculations
- Assess eligibility for enhanced Employment Allowance benefits
- Update internal policies and procedures to reflect these changes
Risk management
These changes must be viewed within the broader context of recent employment legislation, including the Employment Rights Bill and Worker Protection Bill. Employers should conduct comprehensive reviews of their employment practices to ensure full compliance with all newly enacted and upcoming provisions.
Strategic considerations
The cumulative effect of these changes represents a significant increase in employment costs for many businesses. Organisations should:
- Conduct financial impact assessments
- Review staffing structures and budgets
- Consider implementing staged adjustments ahead of April 2025
- Seek professional advice where necessary
How can we help?
Hannah Steenkamp is a Solicitor Apprentice.
For further information on the above subjects please contact Hannah on 01245 584523 or complete our online enquiry form.