We are getting ever closer to the 2025/26 tax year, when changes to payroll regulations announced in the Autumn 2024 Budget will come into effect.
Managing payroll is an essential part of running a business and employing staff, but keeping on top of changes to the system can be very onerous.
Now, it is more important than ever that businesses stay informed and adjust their payroll systems accordingly to ensure compliance.
Here’s what you need to know about changes to your payroll in 2025.
New National Minimum Wage and Employer National Insurance contribution rates
Effective from 1 April 2025, the National Minimum Wage (NMW) rates will increase as follows:
- National Living Wage (age 21 and over) – Rising from £11.44 to £12.21 per hour, marking a 6.7 per cent increase.
- Ages 18 to 20 – An increase from £8.60 to £10.00 per hour, representing a 16.3 per cent rise.
- Under 18 and apprentices – Rates will go up from £6.40 to £7.55 per hour, an 18 per cent increase.
These adjustments aim to reflect the cost of living and ensure fair compensation for workers across all age groups.
However, businesses will have to budget for the additional costs that higher wages will incur.
From 6 April 2025, there will also be changes to the Employer’s National Insurance Contributions (NICs):
- Rate increase – The standard rate for employer NICs will rise to 15 per cent.
- Secondary threshold adjustment – the threshold at which employers start paying NICs will decrease from £9,100 to £5,000 per annum.
Businesses should make sure that payroll software and processes are updated to accommodate the new rates and thresholds.
Changes to statutory pay rates
The UK Government has confirmed updates to statutory pay rates from 6 April 2025.
The weekly rates will increase from £184.03 to £187.18 for:
- Statutory Maternity Pay (SMP)
- Statutory Paternity Pay (SPP)
- Statutory Adoption Pay (SAP)
- Statutory Shared Parental Pay (ShPP)
- Statutory Parental Bereavement Pay (SPBP).
Statutory Sick Pay (SSP) will increase from £116.74 to £118.75.
Additionally, the earnings threshold for these statutory payments will rise from £123 to £125 per week.
Furthermore, the Neonatal Care (Leave and Pay) Act 2023 has introduced Statutory Neonatal Pay (SNP) for eligible employees.
The SNP rate will be £187.18 per week or 90 per cent of the employee’s normal weekly earnings (whichever is lower) for the 2025/26 tax year.
Changes to Employment Allowance
While increases to pay rates and NICs will present businesses with financial challenges, there is some good news.
With the aim of supporting small businesses in particular, the Employment Allowance will undergo the following modifications from 6 April 2025:
- Allowance increase – The maximum annual Employment Allowance will double from £5,000 to £10,500.
- Eligibility expansion – The previous restriction, which disallowed employers with a secondary Class 1 NIC liability exceeding £100,000 from claiming the allowance, will be removed. This change opens up the Employment Allowance to all eligible businesses and charities, regardless of their NIC liabilities in the prior tax year.
If your business was not previously eligible for Employment Allowance, it is worth checking to see whether it will be eligible under the new rules.
If you have already been claiming Employment Allowance, you may be eligible for the increased amount – providing much needed funds to mitigate the effect of additional costs elsewhere.
Effective strategies for a smooth adjustment
To manage these payroll changes with minimal disruption, businesses should adopt the following strategies:
- Initiate preparations early: Reviewing your payroll and beginning adjustments well ahead of the 6 April effective date will facilitate a more seamless transition.
- Embrace technology: Fully utilising payroll software features to accommodate these changes can greatly simplify the transition.
- Communicate with employees: It is important to clearly communicate to employees how these changes will affect their take-home pay, possibly necessitating updates to payslip formats and comprehensive explanations of the adjustments. Open communication will help to maintain transparency and trust within your organisation.
- Assess the financial impact: You may need to revisit your pricing strategy or budget to accommodate higher staffing costs.
- Offer training and development: Although this requires some initial investment, the right training can help offset increased wage expenses by enhancing staff productivity.
- Anticipate workload increases: Adapting to the new NIC rates may temporarily raise administrative demands. Proactive planning, including system updates and communication strategies, can help in minimising potential issues.
- Seek support: A wide range of support is accessible from HMRC, professional payroll associations, and software providers. Utilising these resources can offer further insights and clarification.
After implementing these strategies, your business will be better positioned not only to manage upcoming changes effectively, but also to support employees through the transition, maintaining clarity and confidence throughout the process.
Effortless payroll with Moore Thompson
At Moore Thompson, we understand that business leaders juggle many responsibilities.
Our expert accountants are here to help your business operate as efficiently and cost-effectively as possible.
We’ll keep you up to date with changes to payroll, advise on how they affect you, and help you maximise tax efficiency – freeing up more funds to invest in your business and achieve your growth ambitions.
Additionally, our bespoke MT Pay service delivers all the benefits of an in-house payroll department without the overheads – giving you peace of mind that your business’s payroll needs are taken care of.
Contact our payroll experts today for tailored advice and guidance.