On Wednesday 30 October, Chancellor Rachel Reeves unveiled Labour’s first Budget in 14 years.
The government has set out reforms for the country’s finances, which will impact business owners across the UK. Employers will need to meet new rules around employee pay and workers’ rights.
Here’s what you need to know…
The new rates for employee pay
It’s common for the government to increase statutory pay each year. Usually, this is to keep up with rising costs and inflation rates.
This time, under the new government, employers will face bigger-than-usual rises.
The National Living Wage (paid to over-21s) will increase by 6.7 percent in April 2025. Plus, the National Minimum Wage for 18 to 20-year-olds will jump by 16 percent.
Employee pay rates will rise as follows:
|
Current rate |
New rate |
| National Living Wage (for 21+ workers) |
£11.44 |
£12.21 |
| National Minimum Wage (for 18-20 year olds) |
£8.60 |
£10 |
| Rate for 16-17 year olds |
£6.40 |
£7.55
|
| Apprentice rate |
£6.40 |
£7.55
|
Do these rates kick in straight away?
While you might think your employees are eligible for these new rights right away, they don’t apply immediately.
The new rates will kick in from the start of your first pay reference period, which starts on or after 1 April 2025.
You don’t legally need to adjust employee pay rates until then. Instead, you can continue paying the current minimum rates as they stand now.
Watch out for these pay pitfalls
Each year, the government releases a ‘name and shame’ list of employers who haven’t paid their employees the correct rates.
No employer wants that…
But too often, businesses fall foul to a technicality or common mistake. To avoid unlawful pay deductions, you need to check that any deductions – like if an employee pays for their own uniform – don’t take their average hourly pay below the new minimum.
Plus, watch out for staff overtime. For example, if you pay your employee the new minimum rate exactly – but that employee works more hours than normal – you could be paying less than the minimum once you calculate their average hourly pay.
You would need to divide an employee’s pay by their total hours worked. Then, check if you’re still paying on or above the new rate per hour. Alternately, use HR and payroll software that keeps track of minimum rates for you.
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As the rate has jumped up more than usual, more employers could get caught out.
New pay? New staff contracts
If the Budget announcement means adjusting employee pay, you also need to adjust staff T&Cs.
For example, you may have issued contacts to your apprentices with their current rate of pay. These will need to be updated and, as with any contractual change, agreed to and signed by your employee.
Your National Insurance contributions will rise
Currently, employers pay National Insurance (NI) on staff earnings at a rate of 13.8 percent.
This will rise to 15 percent under the new Budget. Plus, the threshold employers start paying NI on a workers' earnings will drop from £9,100 to £5,000.
This means that more employers will pay more in NI contributions. This will make it more costly to hire staff, so many employers might be tightening their recruitment plans.
To “help smaller businesses” however, the government will also increase employment allowance. This will increase from £5,000 to £10,500, which – according to the Chancellor – means that 865,000 employers won’t pay any National Insurance at all next year.
What else is changing?
Other significant announcements for employers include:
- Private schools will start to pay VAT
- Windfall tax will increase for gas and oil companies – to 38 percent
- The duty will be cut on draft alcohol
- Non-dom tax status is abolished - employees will only pay tax to the UK government for work carried out in the UK
- The basic and new State Pension will be uprated by 4.1% in 2025-26
- Carers' allowance will increase to the equivalent of 16 hours' National Living Wage per week
Plus, the Chancellor claimed that the government will protect working people “from unfair dismissal, safeguard them from bullying in the workplace, and improve their access to paternity and maternity leave”.
So, expect big updates to your HR coming soon…
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Plus, your BrightHR software now has enhanced payroll features, helping you pay the right rates – every time.
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