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The new year is an excellent opportunity for businesses to take a closer look at their finances and plan effectively for the months ahead.
With annual increases in national subsistence, minimum wage and other statutory payments set to come into effect in April 2025, it is essential to prepare for these changes in advance.
National livelihood and minimum wage
From April 1, 2025, the National Living Wage (NLW) and the National Minimum Wage (NMW) will increase as follows:
- National Living Wage (employees aged 21 and over) from £11.44 per hour to £12.21
- Between 18 and 20 years: from £8.60 per hour to £10.00
- 16-17 years: from £6.40 per hour to £7.55
- An apprentice rate from €6.40 per hour to €7.55
The 16.3% increase in the percentage of 18-20 year olds is the largest increase ever. It aims to narrow the gap with the NLW, as the higher rate is expected to be extended to 18-20 year olds in the future. The Low Pay Commission is likely to consult in 2025 on how this can be achieved.
Employers should check the ages of their staff so they can inform payroll or payroll providers of those who will benefit from any NLW or NMW increases to ensure the new rates are paid.
Increase in statutory payments
On April 6, 2025:
- The weekly rate of statutory maternity, adoption, paternity, shared parental and parental leave will increase from £184.03 to £187.18 or 90% of the employee’s average weekly earnings if this is less than the statutory rate.
- The weekly statutory sick pay rate will increase from £116.75 to £118.75
Employers should ensure that staff going on family-related leave are informed of the increased rates at the relevant time.
Although there has been a relatively modest increase in Statutory Sick Pay (SSP), employers should be aware that significant changes may be on the horizon. A consultation on strengthening SSP ended on December 4, 2024. To qualify for SSP, an employee must have an average weekly income equal to or greater than the Lower Income Limit (LEL), which is currently £123 per week (rising to £125 in April). SSP will only be paid from the fourth day of absenteeism due to illness. It is estimated that up to 1.3 million low-wage workers are not eligible for SSP. In addition, because SSP is not paid until the fourth day, many people who qualify for it work even if they feel unwell. As part of the consultation, it is proposed to extend eligibility to those earning below the LEL and remove the three-day waiting period so that SSP is available from day one. The proposal is to phase out the SSP rate so that an employee is entitled to a certain percentage of their average weekly wage or to the SSP flat rate, whichever is lower. There are no further details at this time.
It was announced in the Autumn Budget that the percentage of employer NICs will increase from 13.8% to 15% from 6 April 2025. In addition, because the income threshold has been lowered, employers will pay NICs on employee earnings from £5,000 instead of £9,100.
There is some concern that this increase in employer NICs and the increase in NLW and NMW could negatively impact recruitment and lead to job losses. The higher costs can also be passed on to consumers.
According to a recent announcement from the Deputy Governor of the Bank of England, the increase in employer NICs could slow overall wage growth in the long term.
Undoubtedly, the additional costs pose challenges for employers, especially when it comes to balancing the need to remain competitive with increasing financial pressures. Employers should consider proactive measures such as reviewing budgets, identifying efficiencies and exploring options to improve productivity. Open communication with employees about potential changes and ensuring compliance with legal obligations will also be key to navigating these adjustments.
Additionally, consulting with legal or financial professionals can help companies make informed decisions and implement strategies to effectively manage these changes.