What does the Autumn Budget 2024 mean for employers?

On 30 October 2024, the Labour Government announced their Autumn 2024 budget. We have summarised the key employment takeaways and what they mean for employers.

Increase to National Minimum Wage rates

Just ahead of the budget, on 29 October 2024, the Government announced the new rates for the National Living Wage (for those aged 21 and over) and the National Minimum Wage (for those of at least school leaving age). In justification of the increases, the Government cited the overall aim of supporting low-paid workers against the cost-of-living crisis and bringing the National Living Wage closer to median earnings.

The announcement confirmed that:

• the rates for employees aged over 21 will increase to £12.21 per hour, representing an increase of 77p (or 6.7%) from the current rate of £11.44;
• the rates for employees in the 18-20 age group will increase by 16.3% to £10.00 per hour, and
• the 16-17 age group and apprentice rates are both increasing by 18% to £7.55 per hour.

The new national minimum wage rates will take effect on 6 April 2025.

How should employers prepare for the increased rates?

Employers can start preparing for the increase to National Minimum Wage rates by ensuring that their payroll systems are updated in time for April 2025 to accurately reflect the new rates.

Companies should also review their current contracts of employment (including apprentices) and ensure that they will be paying employees in line with the new rates from April 2025 onwards. If employers are found to be underpaying staff, this can give rise to fines and back pay claims.

Increase to employer National Insurance Contributions

The budget has also announced changes to employer National Insurance Contributions. The Chancellor, Rachel Reeves, has stated that employers’ National Insurance contributions will rise by 1.2% from the previous level of 13.8%, up to 15%.

In addition, the threshold at which businesses start paying National Insurance on a workers’ earnings will be lowered from £9,100 per year to £5,000. By doing this, the Chancellor says it will raise £25bn per year but for employers this significant decrease will mean that businesses will need to allow for increased costs. The Chancellor acknowledged this impact in her speech by stating that she is “…asking businesses to contribute more” and understands “…that there will be impacts of this measure felt beyond businesses too”.

What about smaller businesses?

Rachel Reeves has also announced that the Government will increase the Employment Allowance to help smaller businesses. The Employment Allowance will increase from £5,000 to £10,500, which the Chancellor says will mean 865,000 employers won’t pay any National Insurance at all next year.

What does this mean for employers?

The changes to employers’ National Insurance Contributions have been widely expected and predicted in recent weeks; with many organisations speaking out as to how it will negatively affect them.

The changes will mean that larger employers will be more heavily financially impacted by the higher contribution levels and this, in turn, may impact on commercial decisions around expansion and retention. The Chancellor has acknowledged that workers will likely end up paying for some of the increases. From a legal perspective, we may see that this pressure leads to freezes on recruitment or impacts on decisions to increase employee remuneration levels.

Other points to note

Umbrella companies

The Chancellor has also announced measures to address perceived tax avoidance and non-compliance with Pay As You Earn (PAYE) rules in the umbrella company sector. Umbrella companies are employment intermediaries that employ workers on behalf of agencies and end clients.

The Government has said that HMRC data shows that £500 million was lost to disguised remuneration tax avoidance schemes in 2022 to 2023, almost all of which was facilitated by umbrella companies. As a result, the Government has set out its intention to reform this area from April 2026 onwards.

The intention is to change who has responsibility to account for PAYE where an umbrella company is used in a labour supply chain to engage a worker. This will move the responsibility to account for PAYE from the umbrella company that employs the worker to the recruitment agency that supplies the worker to the end client. Where there is no agency in a labour supply chain, this responsibility will sit with the end client.

It is anticipated that further detail will follow in due course.

Get Britain Working White Paper

Just ahead of the budget, the Government also announced a new White Paper called “Get Britain Working” which will be published shortly. In summary, this is a £240 million cash-injection to accelerate the rollout of local services to help people back into work and drive down inactivity. The Government has said that the UK remains the only G7 country that has higher levels of economic inactivity now than before the pandemic, with 2.8 million people out of work due to long-term sickness, which is holding back productivity and stunting growth.

You may be interested to read our recently published blog on the Employment Rights Bill.

If you have any questions about this blog, or any other employment matters, please do not hesitate to contact a member of the Employment team at Paris Smith LLP.