Forthcoming changes to NMW, Secondary NICs and employment legislation from April 2025

Justine Riccomini discusses forthcoming rises in costs for employers and what they might mean for businesses and those advising them.

As most people know, the UK Budget announcement on 30 October 2024 contained provisions to increase the amount paid by employers in secondary National Insurance contributions (NICs) from 13.8% to 15% from 6 April 2025. In addition to this, the Low Pay Commission recommended a rise in the National Minimum Wage (NMW) from 1 April which takes account of a new methodology, bringing the headline rate up to £12.21 from £11.44 - a rise of 6.7%.

The Employment Rights Bill is progressing through Parliament, having now reached the Report Stage in the Commons. A raft of new employment rights measures are being proposed to take effect from April 2025, including:

• Procedure for handling redundancies. 
• ‘Day one’ unfair dismissal claim rights.
• New measures around firing and re-hiring and so-called ‘zero-hours’ contracts.
• Treatment of workers involved in the supply of services under certain public contracts.
• Duties to be imposed on employers in relation to equality.
• A re-think on statutory sick pay entitlement.
• The establishment of the School Support Staff Negotiating Body and the Adult Social Care Negotiating Body.
• Amend the Seafarers’ Wages Act 2023.
• Implementation of international agreements relating to maritime employment.
• Trades union membership and powers, industrial action, employers’ associations and the functions of the Certification Officer.
• Enforcement of legislation relating to the labour market.
• Connected purposes.

National Insurance Changes

Employer’s (or ‘secondary’) NICs are rising from 6 April 2025 from the current 13.8% to 15%. To compensate for this, the Government made much in the Budget on 30 October 2024 of providing for a rise in the Employment Allowance from £5,000 per annum to £10,500 for eligible employers – yet the sting in the tail is that at the same time, the amount of salary liable to secondary NICs has dropped from £9,100 to £5,000 per employee across the board.  

The current average salary in the UK is £37,430. The secondary NICs bill for this (not taking into account Employment Allowance) will now be £4,864.50 up from £3,909.54.

Anecdotal evidence we have received tells us that in addition to considering headcount reductions, many employers are finding it necessary to pass these costs on to customers in many different sectors, and in others, pay awards are either non-existent or significantly reduced and less than inflation. From childcare provision to hairdressing, to travel to hospitality and retail – customers are likely to be asked to pay more. Some smaller businesses are also shutting down altogether, due, they say, to the April 2025 measures which are too onerous to bear. Examples of these are those which are labour intensive – kennels and catteries being a good example – where there is a requirement for staff to be present 24 hours a day.

National Minimum Wage rise

NMW rises across the board carry an additional cost burden for employers – primarily in terms of salaries and wages, pension contributions and secondary (employer’s) NICs.

For a full-time equivalent role of 36 hours a week, the expected annual salary for a person earning the standard rate of NMW is now £22,857.12 – representing an additional £1,441 of gross pay per employee, per annum.

Employment Rights Bill – impacts

According to some Q4 2024 research recently carried out by the Federation of Small Businesses (FSB), nine in ten small businesses have concerns about the expected changes to workers’ rights, and a third of small businesses said they are expecting to cut jobs in the near future – which is double the amount of those businesses who were considering it in Q3.

In addition to that, the FSB state that only 10 per cent of small business bosses were making plans to take on more staff, compared with 14 per cent between June and September 2024.

Generally, employers tend to fear the Employment Tribunal (ET) more than they do HMRC. This is because of the length of time ETs take, together with the onerous administrative burden of producing case materials, and the high cost of legal representation and related stress on the workers and business owners who are involved.

What does all this mean for British business?

It is important to note that all aspects of National Insurance, NMW and employment legislation are reserved to the UK government, so devolved governments do not have the power to change what is decided there, and their citizens and businesses must comply.

Naturally, media attention has turned to the question of whether employer businesses across the UK have sufficient capacity to absorb the additional costs and associated administrative burdens, whilst deciding whether they can retain the same headcount, grow their businesses and provide the same service levels to new and existing customers.

The role of the accountant and tax adviser

Ideally, it will be prudent for conversations to take place with clients affected by the measures prior to them coming in, to ensure that financial forecasting and budgeting are nailed down. Employer clients should ensure that their HR policies are up to date and, if necessary, advice should be taken from a suitably qualified HR professional or employment lawyer – especially where the business is considering reducing headcount or engages workers on casual or zero-hours contracts. For sectors involving trades unions, it is important to understand what the changes are and the potential impact of any additional powers available to workers as a result.

If you’ve spotted a tax anomaly that is producing an inequitable result or getting in the way of doing business, why not share it with the ICAS tax team?

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