Employers' National Insurance & Minimum Wage: What You Need to Know

Employers' National Insurance & Minimum Wage: What You Need to Know

Next month, the much-maligned Employer National Insurance increase finally becomes a reality.  As was announced in the budget in October 2024, the purpose of this rise is to bolster public finances and support increased spending by the government.  This increase is coupled with an increase in the National Minimum Wage (NMW), which aims to enhance worker earnings, in particular for those engaged in lower-paying roles.

One thing to make clear is that the change to Employer National Insurance impacts all PAYE workers and, therefore, the cost of engaging a temporary PAYE worker will be impacted in much the same way as a permanent member of staff.  So for the worker, there will be no discernible change, however, the cost to the business will increase.

One thing to benefit (eligible) businesses is that the employment allowance will increase from £5,000 to £10,500, with the eligibility cap of £100,000 being removed.  As per the government website: “The removal of the £100,000 eligibility cap changes the nature of the Employment Allowance from a relief targeted at helping small businesses grow and incentivising employment, to a structural feature of the NICs system available to all eligible businesses”. http://bit.ly/4itzJWI

National Minimum Wage Increase

Starting April 2025, the National Minimum Wage will rise by 6.7%, bringing the hourly rate to £12.21 for workers aged 21 and over.

(https://www.gov.uk/government/publications/minimum-wage-rates-for-2025)

Employer National Insurance Contributions

Alongside the wage increase, employer NICs will rise from 13.8% to 15% on salaries above £5,000, effective from April 2025. As reported in the Times, this adjustment is expected to generate an additional £25 billion annually for the Treasury.

Impact on Permanent and Temporary Workers

Both permanent and temporary workers will experience these changes uniformly. The NMW increase ensures higher earnings across the board, while the rise in employer National Insurance Contributions (NICs) affects businesses employing individuals in both capacities.

Utilisation of Increased Revenue

The additional revenue from higher employer NICs is earmarked for several key investments:

• National Health Service (NHS): Significant funds will be allocated to improve healthcare services, aiming to reduce waiting times and enhance patient care.

• Education: Investments are planned to upgrade educational facilities and resources, striving for better learning environments and outcomes.

• Defence: With the ever-changing US policy around Russia and Ukraine, the UK government has announced an increase in defence spending (circa £3 billion) to help bolster national security and military capabilities.

• Infrastructure: Funds will be directed toward developing affordable housing and enhancing transport networks, supporting economic growth and accessibility.

In conclusion, it will be interesting to see how these changes impact the economy.  Back in April 2022, the Conservative government implemented a similar change only for it to be reversed again in November of that year by Liz Truss (in her brief spell as PM).

The above does represent a big shift in Fiscal policy and could see a big increase in investment across the country, which should benefit us all.  Time will tell…….

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