The new year is an excellent opportunity for businesses to review their finances and plan effectively for the months ahead.
With the annual increases to the national living and minimum wage and other statutory payments set to take effect in April 2025, its essential to prepare for these changes in advance.
National Living and Minimum Wage
From 1 April 2025, the National Living Wage (NLW) and the National Minimum Wage (NMW) will increase as follows:
- National Living Wage (workers aged 21 and over) from £11.44 an hour to £12.21
- Aged 18-20 from £8.60 an hour to £10.00
- Aged 16-17 from £6.40 an hour to £7.55
- Apprentice rate from £6.40 an hour to £7.55
The 16.3% increase in the 18-20-year-old rate is the largest increase ever. It is intended to narrow the gap with the NLW because the higher rate is expected to be extended to 18-20-year-olds in the future. The Low Pay Commission is likely to consult on how to achieve this in 2025.
Employers should audit the ages of their workforce so that they can inform payroll or payroll providers about the individuals benefitting from any increases to the NLW or NMW to ensure that the new rates are paid.
Increase in statutory payments
On 6 April 2025:
- The weekly rate of statutory maternity, adoption, paternity, shared parental and parental bereavement leave pay will increase from £184.03 to £187.18 or 90% of the employee’s average weekly earnings if this is less than the statutory rate.
- The weekly rate for statutory sick pay will increase from £116.75 to £118.75
Employers will need to ensure that staff going on family-related leave are informed of the increased rates at the relevant time.
Although there is a relatively modest increase to statutory sick pay (SSP), employers must be aware that there are potentially significant changes ahead. On 4 December 2024, a consultation exercise about strengthening SSP ended. To be eligible for SSP, an employee must have average weekly earnings at, or above, the lower earnings limit (LEL), which is currently £123 a week (increasing to £125 in April). SSP is only paid from the fourth day of sickness absence. It is estimated that up to 1.3 million low-paid workers are not eligible for SSP. In addition, because SSP is not payable until the fourth day, many people who qualify for it work when they are unwell. As part of the consultation, it is proposed that eligibility be extended to those earning below the LEL and that the three-day waiting period be removed so that SSP is available from day one. The proposal is to introduce a taper to the SSP rate so that an employee is entitled to a certain percentage of their average weekly earnings or the SSP flat rate, whichever is lower. There are no further details at the moment.
National insurance contributions
In the autumn budget, it was announced that, from 6 April 2025, the rate of employers’ NICs will increase from 13.8% to 15%. In addition, because the earnings threshold has been lowered, employers will pay NICs on employee earnings from £5,000 rather than £9,100.
There is some concern that this rise in employers’ NICs and the increases in the NLW and NMW could negatively impact recruitment and result in job losses. The increased costs could also be passed on to consumers.
According to a recent announcement by the Deputy Governor of the Bank of England, the rise in employers’ NICs could slow long-term wage growth overall.
Undoubtedly, the additional costs present challenges for employers, particularly when balancing the need to remain competitive with the rising financial pressures. Employers should consider proactive measures, such as reviewing budgets, identifying efficiencies, and exploring options to enhance productivity. Open communication with employees about potential changes and ensuring compliance with legal obligations will also be key to navigating these adjustments.
Furthermore, consulting with legal or financial professionals can assist businesses in making informed decisions and implementing strategies to manage these changes effectively.
Read more:
Looking ahead to 2025: Increased costs for employers