Increased costs for employers     

Increased costs for employers     

The New Year is an excellent opportunity for businesses to review their finances and plan effectively for the months ahead.

With annual increases in national living, minimum wages and other statutory payments set to come into force in April 2025, it is essential to prepare for these changes in advance.

National living and minimum wage

From 1 April 2025, the National Living Wage (NLW) and National Minimum Wage (NMW) will increase as follows:

  • National Living Wage (workers aged 21 and over) from £11.44 per hour to £12.21
  • For 18-20 year olds, from £8.60 per hour to £10.00
  • For 16-17 year olds, the price ranges from £6.40 per hour to £7.55
  • Apprentice rate from £6.40 per hour to £7.55

The 16.3% increase in the rate of people between the ages of 18 and 20 is the largest increase ever. Its purpose is to narrow the gap with NLW because the higher rate is expected to extend 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 review the ages of their workforce so they can inform payroll or payroll providers of individuals benefiting from any increases in NLW or NMW to ensure payment of the new rates.

Increase in statutory payments

On April 6, 2025:

  • The weekly rate of pay for statutory maternity, adoption, paternity, shared parenting and maternity leave will increase from £184.03 to £187.18 or 90% of the employee’s average weekly earnings if this is below the statutory rate.
  • The weekly rate of statutory sick pay will increase from £116.75 to £118.75.

Employers will need to ensure that employees on family leave are informed of the increased rates in a timely manner.

Although there has been a relatively modest increase in statutory sick leave pay (SSP), employers should be aware that there are potentially significant changes ahead. On 4 December 2024, the consultation process on enhancing the SSP ended. For an employee to be eligible for SSP, their average weekly earnings must be at or above the Minimum Earning Limit (LEL), which is currently £123 per week (increasing to £125 in April). SSP is only paid from the fourth day of sickness absence. It is estimated that as many as 1.3 million low-wage workers are not eligible for SSP. Additionally, because SSP isn’t paid until the fourth day, many people who qualify for it work when they’re feeling well. As part of the consultation, it is proposed to expand eligibility to those on income below the minimum threshold and remove the three-day waiting period so that the SSP is available from day one. The proposal is to introduce a gradual reduction in the SSP rate such that the employee is entitled to a certain percentage of his or her average weekly income or the flat rate of SSP, whichever is lower. There are no other details at the moment.

National Insurance contributions

In the Autumn Budget, it was announced that from 6 April 2025, the NIC rate for employers will rise from 13.8% to 15%. In addition, due to the lowering of the earnings threshold, employers will pay national ID cards on employees’ earnings starting at £5,000 instead of £9,100.

There is some concern that this rise in national employer ID cards and increases in NLW and NMW could negatively impact employment and lead to job losses. Increased costs can also be passed on to consumers.

According to a recent announcement by the Deputy Governor of the Bank of England, the rise in the number of NICs for employers may slow long-term wage growth overall.

There is no doubt that the additional costs pose challenges for employers, especially when balancing the need to maintain competitiveness with increasing financial pressures. Employers should consider taking 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 dealing with these amendments.

Furthermore, consulting with legal or financial professionals can help companies make informed decisions and implement strategies to effectively manage these changes.


Hannah Waterworth

Hannah Waterworth is an employment lawyer in the Employment, Pensions, Benefits and Immigration team at Blake Morgan.

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