The October Budget was not particularly kind to employers, with the cost of employer national insurance contributions (NICs) going up substantially from April 2025, combined with inflation-busting increases to the National Living/Minimum Wage.
Employer NICs
From 6 April 2025, the rate of employer NICs will increase from 13.8% to 15%, and the starting annual threshold will be lower at £5,000 (it is currently £9,100). For example, for someone employed on £50,000 per annum, the employer NIC cost will be just over £1,100 higher for 2025/26:
- The increased 15% rate will also hit employers if they provide taxable benefits, such as medical cover, to employees.
- The £5,000 threshold will stay in place until 5 April 2028. The threshold reduction will have a disproportionate impact on employers with a large number of low earners.
On the plus side – especially for smaller employers – the employment allowance is being increased from £5,000 to £10,500. Currently, this allowance is not available where employer NICs were £100,000 or more in the previous tax year. This restriction will be removed.
Although four full-time workers on the National Living Wage can be employed without any NIC cost for the employer, the changes are likely to see employers being increasingly careful with their recruitment policies.
National Minimum/Living Wage
Minimum wage rates will see substantial increases from 1 April 2025, with younger workers and apprentices benefiting the most:
- For those aged over 21 and over, the hourly rate will go up by 6.7% to £12.21.
- For 18- to 20-year-olds, there is a 16.3% increase to £10.00.
- For apprentices and those under 18, the increase to £7.55 represents an 18% hike.
This follows similarly high increases in April 2024. Employees will welcome the uplift, but many employers will struggle with the additional cost; especially those in the hospitality sector. For full-time employees aged 21 and over, the increase is worth £1,400 a year. For 18- to 20-year-olds, the annual benefit is potentially worth over £2,500. The rates of National Minimum/Living Wage can be found here.