The new year is an excellent opportunity for businesses to review their finances and plan effectively for the coming months.
With the annual increase in living and minimum income and other statutory payments coming into force in April 2025, it is important 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
- 18-20 years from £8.60 an hour to £10.00
- 16-17 year olds from £6.40 an hour to £7.55
- Apprenticeship rates range from £6.40 an hour to £7.55
The 16.3% increase in the rate for 18-20 year olds is the largest increase of all. It is intended to reduce the gap with the NLW because the maximum level is expected to be extended to 18-20 year olds in the future. The minimum wage commission is likely to discuss how to achieve this by 2025.
Employers should check the ages of their employees so that they can inform payroll providers or payroll providers about individuals who benefit from any increase in NLW or NMW to ensure that the new rates are paid.
Increase in statutory fees
On 6 April 2025:
- The weekly rate of statutory pregnancy, adoption, parental, bereavement and shared parental leave pay will increase from £184.03 to £187.18 or 90% of the employee’s average weekly earnings if this is lower than the statutory rate.
- The weekly rate of statutory sick pay will rise from £116.75 to £118.75
Employers will need to ensure that employees going on family leave are notified of the increased rates in a timely manner.
Although there is a limited increase in statutory sick pay (SSP), employers should be aware that there are potentially significant changes to come. On 4 December 2024, the consultation exercise on strengthening the SSP ended. To be eligible for SSP, a worker must have an average weekly income of, or more than, the minimum wage limit (LEL), which is currently £123 per week (increasing to £125 in April). SSP is paid only from the fourth day of sickness absence. It is estimated that up to 1.3 million low-wage workers are eligible for SSP. Additionally, because SSP is not paid until the fourth day, many people who qualify for it work when they are sick. As part of the consultation, it is suggested that eligibility be extended to those earning below the LEL and that the three-day waiting period be removed for SSP to be available from day one. The proposal is to introduce a reduction in the level of SSP so that the worker is entitled to a certain percentage of the average weekly earnings or the minimum level of SSP, whichever is lower. There are no other details yet.
National insurance contributions
In the Autumn Budget, it was announced that, from 6 April 2025, the rate of NICs for employers will rise from 13.8% to 15%. In addition, because the income threshold has been lowered, employers will pay NICs on employee earnings from £5,000 rather than £9,100.
There is some concern that this increase in employers’ NICs and the increase in NLW and NMW may have a negative impact on employment and result in 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, a rise in employers’ NICs could slow wage growth for a long time.
Undoubtedly, the increased costs present challenges for employers, especially when balancing the need to remain competitive with increasing financial pressures. Employers should consider proactive measures, such as reviewing budgets, identifying efficiencies, and evaluating options to improve productivity. Open communication with employees about potential changes and ensuring compliance with legal obligations will also be key to navigating these changes.
In addition, consulting with legal or financial experts can help businesses make informed decisions and implement strategies to manage these changes effectively.
