Pay More, Start Earlier: Double Hit of NICs Changes Looms for Employers

The most significant change to employer costs has been announced in the Autumn Budget 2024, with businesses facing a 1.2 percentage point rise in employer National Insurance contributions from April 2025.

This measure will increase the rate to 15%, alongside a reduction in the per-employee threshold at which employers start paying National Insurance from £9,100 to £5,000 per year.

These changes form part of a wider suite of employment-related reforms announced in the Budget, spanning statutory pay rates, benefits administration, and skills development, set to roll out over the next five years.

Immediate Cost Implications

The NICs changes present a balanced approach for different sized businesses. While the headline rate is increasing, the government has doubled the Employment Allowance from £5,000 to £10,500 and removed the £100,000 eligibility threshold.

According to the Budget document, this means 865,000 businesses will pay no NICs at all next year, and more than half of employers with NICs liabilities will either see no change or will gain overall.

The changes to employer NICs will take effect from 6 April 2025. Even after these changes, the UK’s total revenue as a share of GDP from employer Social Security Contributions and payroll taxes will remain below the OECD average and third lowest in the G7, below France, Italy, Germany and Japan, based on the latest available OECD data.

Wage Structure Changes

The government has accepted the Low Pay Commission’s recommendations in full, leading to a significant increase in the National Living Wage to £12.21 per hour from April 2025. This represents an increase of over £1,400 to the annual earnings of a full-time worker on the National Living Wage and is expected to benefit over 3 million low paid workers across the UK.

A notable change affects younger workers, with the National Minimum Wage for 18-20 year olds increasing by 16.3% to £10.00 per hour – the largest ever increase in both cash and percentage terms. This equates to a boost in annual earnings of over £2,500 for nearly 200,000 young people across the UK.

Administrative Changes

From April 2026, the reporting of benefits in kind via payroll software will become mandatory. This will apply to both income tax and Class 1A National Insurance contributions.

The change aims to streamline the administration of employee benefits.

Changes to company car taxation have also been confirmed, with rates set through to 2029-30.

The system will continue to incentivize the adoption of electric vehicles, while rates for hybrid vehicles will increase to align more closely with rates for internal combustion engine vehicles. Zero emission cars will see their Appropriate Percentages increase by 2 percentage points per year in 2028-29 and 2029-30, rising to 9% in 2029-30.

Employment Rights Evolution

The Employment Rights Bill, introduced on 10 October 2024, represents the first phase of delivering the Plan to Make Work Pay. The legislation will modernize the UK’s employment rights framework by:

• Making flexible working the default
• Establishing a new right to bereavement leave
• Making paternity and parental leave available from day 1 of starting a new job

Skills and Development

The Budget commits £300 million additional funding for further education to ensure young people develop the skills needed to succeed.

The government is also taking initial steps to transform the Apprenticeship Levy into a Growth and Skills Levy, with £40 million allocated to help deliver new foundation and shorter apprenticeships in key sectors.

Timeline and Implementation

These changes will be implemented in phases:

• April 2025: New NICs rates and thresholds, National Living Wage increases
• April 2026: Mandatory benefits in kind reporting
• 2028-29: New company car tax regime begins
• 2029-30: Full implementation of company car tax changes

The government has confirmed that the reforms to the Growth and Skills Levy will be developed in partnership with employers, providers, and learners, with further details to be announced.