Autumn Budget 2024: PwC comments on employment tax changes; National Insurance Contributions and National Minimum Wage

Paula Letorey, Workforce partner at PwC, said:

"October has been a milestone month for the Labour Government's 'Making Work Pay' initiative, marked by the introduction of the Employment Rights Bill, significant increases to the National Living Wage, (NLW), and today's announcement of an increase in Employer’s National Insurance Contributions in the budget.

“Beyond the additional requirements and costs associated with the Employment Rights Bill, the combined rise in the NLW and employer’s NIC will lead to a significant increase in employer costs. The stark reduction in the earning threshold at which employers start paying NIC from £9,100 to £5,000 exacerbates this issue, and will lead to those sectors with a higher volume of part time workers seeing a larger increase in their overall workforce costs. However, some form of relief is provided by the extension of the employment allowance.

“These changes will have a significant impact on businesses as they adjust to the additional costs. This may influence broader business and commercial decisions that could result in higher prices and impact inflation more broadly.

“With both NLW and NIC increases taking effect from April 2025, employers should act now to understand the impact of the combined changes. This includes the impact on pay differentials, pay bands and how they will maintain competitiveness for attraction and retention. Many employers make use of salary sacrifice arrangements, which will now be more attractive and mitigate some of the impact of the NIC rate increase, however additional care will be needed as more employees may be paid close to the new level of NLW.”  

Minimum wage increase

John Harding, Partner, Head of Employment Tax at PwC, said:

“While not as large as last year's rise, the 6.7% increase to the National Living Wage is nearly four times September’s 1.7% inflation rate, underlining the Government’s commitment to a 'Genuine Living Wage' for all adult workers.

“The most significant impact will be on 18-20 year olds, who will see the largest increase to the National Minimum Wage on record. This aligns with Labour’s General Election pledge for a single Genuine Living Wage for all adult workers. As these two rates converge, it will be interesting to see any potential impact on the hiring of younger workers.

“Today’s increase means even employers paying the voluntary Real Living Wage outside London at £12.60 an hour risk breaching the National Living Wage (NLW) during months with 23 working days. As the gap between the NLW and the Real Living Wage narrows, monthly paid workers on the Real Living Wage may find their effective hourly rate falls below the NLW in such months. Employers must take measures to prevent this.

“Finally, the NLW increase means employers must, from April, ensure that salary sacrifice schemes, such as those for pensions contributions or low CO2 emission cars, do not inadvertently breach NLW.”