Changes in Wages and National Insurance Contributions

As of April 2025, significant adjustments to the National Living Wage (NLW) and National Insurance Contributions (NICs) are set to take effect, impacting both employers and employees across the UK.

Understanding these changes is crucial for businesses to remain compliant and for employees to be aware of their entitlements.

Which Business will be affected by the National insurance & wage changes?

The wage and National Insurance changes will impact all businesses, but those in sectors with traditionally lower-paid roles will feel the effects most significantly. Hospitality, social care, and retail—industries that rely heavily on minimum wage workers—will see substantial increases in payroll costs. Small businesses and those operating on tight margins may struggle to absorb these changes, potentially leading to price increases, reductions in staff hours, or adjustments to hiring practices. Care providers, already under financial strain, may need to reassess budgets to continue offering quality services while complying with the new wage requirements.

National Living Wage Increase

The UK government has announced that, from 1 April 2025, the National Living Wage for workers aged 21 and over will rise to £12.21 per hour, marking a 6.7% increase from the previous rate. This adjustment is anticipated to benefit over 3 million workers, providing a substantial boost to their annual earnings.

For a full-time employee working 37.5 hours per week, this increase translates to an additional £1,505.54 in gross annual pay, or approximately £125.46 more per month.

National Insurance Contributions Adjustments

In tandem with the wage increase, changes to National Insurance Contributions are also slated for April 2025:

• Secondary Class 1 NICs Rate: The rate for employers will rise from 13.8% to 15%.

  
  

• Secondary Threshold: The threshold will be set at £5,000 per year from 6 April 2025 until 5 April 2028. This means employers will start paying NICs on employee earnings above this annual amount.

  
  

• Employment Allowance: The maximum allowance will increase from £5,000 to £10,500, and the £100,000 eligibility threshold will be removed, allowing more employers to benefit from this relief.

  
  

what does this mean for Employers?

While the increase in the NLW is a positive development for employees, it presents several challenges for employers:

• Increased Payroll Costs: Higher wages and elevated NIC rates will raise overall employment expenses.

• Budget Reassessment: Businesses may need to revisit their financial plans to accommodate these changes, ensuring sustainability.

• Pricing Strategies: To offset increased costs, some businesses might consider adjusting their pricing models, which could affect competitiveness.

what does this mean for Employees?

Employees stand to gain from increased take-home pay due to the NLW rise. However, it's essential to be aware of potential adjustments employers might make in response, such as changes in working hours or benefits.

Navigating the Changes with Swan HR

Adapting to these regulatory changes can be complex. At Swan HR, we offer comprehensive HR support to help businesses:

• Policy Updates: Ensure your HR policies align with the new wage and NIC regulations.

• Financial Planning: Assist in budgeting for increased employment costs.

• Employee Communication: Develop strategies to effectively inform staff about changes to their wages and any other related adjustments.

  
  

By partnering with Swan HR, you can confidently navigate these changes, ensuring compliance and maintaining a motivated workforce.