By Ken Craig, Director
So now we know more about the Labour Government's 'Making Work Pay' initiative: the introduction of the Employment Rights Bill, significant increases to the National Living Wage and the Autumn Budget’s announcement of an increase in Employer’s National Insurance Contributions.
At a time of additional requirements and costs associated with the Employment Rights Bill, the rise in the National Living Wage, together with increased employer’s NIC, will lead to a significant increase in employer costs. Add to that the reduction in the earning threshold at which employers start paying NIC from £9,100 to £5,000 and the costs continue to mount. Whilst there is relief for some from the increase of the employment allowance, there will be a significant impact on businesses. How will this alter plans going forward and thus prices and inflation?
A more detailed summary of key measures is set out below.
Employer’s National Insurance Contributions (NIC)
The impact of the rise in NIC for employers will be significant. The reduction in the threshold will lead to employer NIC for more employees. For example, where previously an employer need not pay employer NIC for an employee earning £9,100, it will now have to pay £615.
The employers’ National Insurance rate is also increasing from 13.8% to 15% from April 2025. This means an employee earning £30,000 a year will cost an additional £866.
From 6 April 2025, the annual employment allowance, which currently reduces the employer’s NIC liability of eligible employers by up to £5,000, will increase to £10,500 and the qualifying requirement to have a total secondary Class 1 NIC liability of less than £100,000 in the prior year will be removed, which should make this relief available to all eligible employers.
National Living Wage (NLW) and National Minimum Wage (NMW)
From 1 April 2025 the NLW for employees aged 21 and over will increase from £11.44 to £12.21 per hour. Increases to the NMW will also apply to those aged 18–20 (from £8.60 to £10.00 per hour) and those aged 16–17 and apprentices (from £6.40 to £7.55 per hour). These are the largest increases to rates on record, marking the first steps in the Government’s commitment towards a single adult rate, but what will be the impact on the hiring of younger workers?
Taxation of company cars
The Government has set company car benefit tax rates for tax years 2028/29 and 2029/30. The appropriate percentages for calculating the car benefit charge for zero emission and electric vehicles (EVs) will increase by 2 percentage points per year in 2028/29 and 2029/30, rising to 9 percent in 2029/30. First Year Allowances of 100 percent for zero emission cars and EV charge points have also been extended for a further year. The Government further announced that, following a Court of Appeal decision, it will not introduce legislation to maintain the treatment of double cab pick-up vehicles with a payload of one tonne or more as goods vehicles. This now means that a car benefit charge will be applied to double cab pick-ups from 6 April 2025 (subject to transitional provisions for currently held vehicles).
Mandatory payrolling of Benefits in Kind (BiKs)
The previous Government announced that employers would be required to report and pay income tax and Class 1A NIC on BiKs through payroll in ‘real time’ from April 2026. It has been confirmed that payrolling BiKs will become mandatory from April 2026.
Tackling non-compliance in the umbrella company market
The Government has announced it will bring forward legislation to change who has responsibility to account for Pay As You Earn (PAYE) where an umbrella company is used in a labour supply chain to engage a worker. This will move the responsibility to account for PAYE from the umbrella company that employs the worker to the recruitment agency that supplies the worker to the end client. Where there is no agency in a labour supply chain, this responsibility will sit with the end client. This change will take effect from April 2026.
Setting the Official Rate of Interest (ORI)
Currently the ORI, which is used to calculate employees’ tax liabilities in respect of employer provided living accommodation and beneficial loans, is set for an entire tax year. From 6 April 2025, the ORI will be reviewed, and may change, on a quarterly basis.
The Chairman of the CBI writes: “If employing more people is not only more expensive (NIC increases) but also more difficult and risky (employment rights bill), businesses will be reluctant to hire more people. Whilst the TUC said: “The government is delivering on its promise to make work pay.” Time will tell, but employers certainly appear to be bearing the brunt of the tax changes.
How can we help?
In this environment of increasing financial pressure, it is more important than ever for businesses to make strategic and efficient hiring decisions. Poor recruitment choices can lead to increased turnover, wasted resources, and additional costs at a time when margins are already squeezed. This is where our agency comes in — by leveraging our expertise in matching the right talent to the right roles, we can help businesses mitigate the risks associated with recruitment. Our thorough vetting process, industry knowledge, and tailored solutions ensure that your hiring decisions align with your long-term objectives, optimising both cost and quality.
Partnering with a trusted recruitment agency like ours can make a significant difference in navigating these new economic challenges, allowing you to maintain efficiency and workforce stability amidst rising costs.