In the wake of the Autumn Budget 2024, employers across the UK face notable changes in the cost of employing minimum wage staff. From April 2025, the National Living Wage will rise, Employer National Insurance will increase to 15%, and the threshold for NI will drop. These adjustments, alongside pension contributions and the Apprenticeship Levy (for applicable organisations), mean that the total cost of hiring a minimum wage worker will be higher than ever. This article dives into these changes and provides an in-depth breakdown of what employers need to budget for.
Key Changes in Employer National Insurance Contributions
Starting in April 2025, the Employer National Insurance (NI) contribution rate will increase by 1.2%, moving from 13.8% to 15%. Compounding this rise, the Secondary Threshold for Employer NI will lower from £9,100 to £5,000, meaning that more of an employee’s earnings will be subject to NI contributions. This change affects employers at all levels, making it essential for businesses to prepare for increased NI costs.
Impact of Employer NI Increase
The increase from 13.8% to 15% on earnings over £5,000 raises costs for all businesses employing full-time staff on or above minimum wage. For companies with a large workforce, particularly those employing many at minimum wage, this increase could have a substantial impact on payroll budgets.
Talk Staff can support businesses in managing these increases effectively, offering payroll planning and HR services to help companies stay compliant and control costs.
Minimum Wage Increase and Its Implications
The National Living Wage will increase to £12.21 per hour for those over 21 starting April 2025. For employers with minimum wage employees, this change means higher outgoings on salaries. For a full-time employee working 37.5 hours per week, the new rate results in the following:
- Hourly Rate: £12.21
- Weekly Pay: £457.88
- Annual Salary: Approximately £23,810
This wage increase, while designed to support workers’ cost of living, significantly raises payroll costs, making budgeting and strategic planning essential for employers.
At Talk Staff, we help you incorporate these changes into your payroll systems, ensuring you are prepared for the minimum wage increase and fully compliant with new regulations.
Calculating the Full Cost of Employing a Minimum Wage Worker in 2025
Here’s a breakdown of the estimated total costs for employing a full-time worker on the minimum wage in 2025, including base salary, NI, pension contributions, and the Apprenticeship Levy (if applicable).
- Annual Gross Salary
- Base Salary: £23,810 (based on the £12.21 per hour rate)
- Employer National Insurance Contribution
- Rate: 15%
- Threshold: £5,000 per year
- Employer NI Cost: (£23,810−£5,000)×0.15=£2,571.50
- Pension Contribution
- Minimum Employer Contribution: 3% of qualifying earnings (for businesses obligated to auto-enrol)
- Pension Cost: £23,810×0.03=£714.30
- Apprenticeship Levy (if applicable)
- Levy Rate: 0.5% of the total annual pay bill (for employers with annual payrolls exceeding £3 million)
- Apprenticeship Levy Cost: £23,810×0.005=£119.05
- Total Estimated Cost
- Total Cost (with Apprenticeship Levy): £27,214.85
- Total Cost (without Apprenticeship Levy): £27,095.80
This comprehensive calculation provides employers with a clearer picture of their payroll expenses for 2025. Factoring in all costs is crucial, as neglecting items like pension contributions or the Apprenticeship Levy (for those it applies to) can lead to underestimating annual payroll budgets.
Talk Staff can guide you through these calculations, helping you forecast accurate payroll expenses and stay financially prepared.
Employment Allowance: A Partial Offset for NI Increases
The Employment Allowance will increase to £10,500 from April 2025. Eligible employers can use this allowance to offset their total NI liability across the organisation, reducing the financial impact of the NI increase. It’s important to remember that this allowance applies to the total NI bill, not to individual employee costs.
For smaller businesses with eligible payroll expenses, this allowance may cover a substantial portion of their NI contributions, offering some financial relief. Talk Staff can help you determine how to maximise the Employment Allowance, ensuring that you utilise this benefit efficiently.
Adjustments in Tax Banding and Their Long-Term Implications
The Autumn Budget 2024 also confirmed that tax thresholds would remain frozen until 2028. After this freeze, the thresholds will align with inflation, potentially providing some relief for employers and employees alike. However, during the freeze period, wage increases push more income into higher tax bands, leading to increased tax burdens on employees, which may indirectly influence wage expectations and payroll costs.
Employers must stay informed about these changes, as employees may seek higher wages to offset their increased tax liabilities, adding indirect pressure to payroll budgets. Talk Staff’s payroll experts can help ensure compliance with these changes and support your team in communicating these updates to employees effectively.
Balancing Wage Growth and Financial Sustainability
The government’s focus on raising the minimum wage and increasing NI reflects an ongoing commitment to enhancing wages and supporting workers’ cost of living. However, many employers are concerned about balancing wage growth with financial sustainability, particularly given the rising payroll costs and other overheads.
While higher wages can boost productivity, satisfaction, and employee retention, they also present challenges for companies trying to keep expenses manageable. By working with a payroll and HR advisory team like Talk Staff, businesses can navigate these complexities, balancing wage costs with a stable and resilient budget.
How Talk Staff Can Help Your Business Prepare for 2025
As employers face rising payroll expenses and regulatory changes, proactive planning is essential. Here’s how Talk Staff can support you through these transitions:
- Payroll Budgeting and Forecasting: We help integrate new wage rates, NI increases, and other contributions into your payroll plan, ensuring accurate budgeting and forecasting.
- Maximising Employment Allowance: Our team guides you in optimising the Employment Allowance, reducing your total NI costs where possible.
- Compliance with Tax and Pension Requirements: We provide the latest updates on tax banding and pension regulations, ensuring your business stays compliant.
- Strategic Cost Management: By assessing your workforce structure, we can recommend strategies to manage payroll costs effectively, such as incorporating part-time roles or optimising your use of the Employment Allowance.
With Talk Staff’s payroll solutions, you can feel confident that your business will remain competitive, compliant, and financially stable, even with these new employment costs.
FAQs
What is the new Employer National Insurance rate for 2025?
From April 2025, the Employer NI rate will increase from 13.8% to 15%. Additionally, the Secondary Threshold will lower to £5,000, increasing the portion of salary subject to NI.
How much will it cost to employ someone on the new National Minimum Wage?
Employing a full-time worker on the new £12.21 hourly rate will cost approximately £27,095.80 annually, which includes NI and pension contributions. If the Apprenticeship Levy applies, the total cost rises to around £27,214.85.
Can the Employment Allowance be applied to individual employee costs?
No, the Employment Allowance applies to the entire organisation’s NI bill, not per employee. It offsets up to £10,500 of NI contributions across the company.
How does the tax band freeze affect employers?
While it directly impacts employees, the tax band freeze may indirectly affect employers if employees negotiate higher wages to counteract increased tax liabilities, impacting payroll budgets.
Why are minimum wage and National Insurance contributions increasing?
These increases are part of government initiatives to help workers cope with inflation and the cost of living, aiming to provide fairer wages and protect living standards.
How can Talk Staff help manage these changes?
Talk Staff offers payroll and HR services to help businesses navigate wage increases, NI changes, and tax adjustments, ensuring they remain compliant and prepared for the new costs of employment.
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Last Updated on 1 month by Gary Parsons
Last Updated on 1 month by Gary Parsons