Employers facing significant changes to NICs and Minimum Wage rates from April 2025

On 13 November 2024, the National Insurance Contributions (Secondary Class 1 Contributions) Bill 2025 was introduced into Parliament. Alongside this, HMRC published a policy paper explaining changes to employer National Insurance Contributions (NICs) and the Employment Allowance, which will take effect from 6 April 2025.

Additionally, new National Minimum Wage (NMW) and National Living Wage (NLW) rates announced in the Autumn 2024 Budget will also come into force in April 2025. These combined measures will significantly increase payroll costs, making preparation essential for employers.

New minimum wage rates

Effective 1 April 2025, the NLW and NMW rates will rise, as follows:

• Ages 21 and over: 6.7% increase, from £11.44 to £12.21 per hour
• Ages 18–20: 16.3% increase, from £8.60 to £10.00 per hour
• Ages 16–17 and apprentices: 18% increase, from £6.40 to £7.55 per hour

These adjustments, based on recommendations from the Low Pay Commission, are intended to align minimum wages with inflation and move towards the government’s target of two-thirds of median earnings. Notably, this includes a record increase for 18–20-year-olds, anticipating the eventual extension of the adult NLW rate to all workers aged 18 and over.

While these increases will boost incomes for lower-paid workers, employers will need to budget for higher payroll costs and ensure compliance to avoid penalties or reputational damage.

Changes to employer NICs

The National Insurance Contributions (Secondary Class 1 Contributions) Bill 2025 proposes significant changes to employer NICs, effective from 6 April 2025:

• The rate of secondary Class 1 contributions (including Class 1A and Class 1B NICs) will increase from 13.8% to 15%
• The secondary threshold for Class 1 contributions will decrease from £9,100 to £5,000, bringing an additional £4,100 of each employee's income into NIC liability
• The Employment Allowance will increase from £5,000 to £10,500, with the removal of the eligibility threshold requiring secondary NIC liabilities below £100,000 in the previous tax year

These changes will have a compounding effect on employers’ payroll costs, particularly for those with larger workforces or employees earning above the reduced secondary NIC threshold.

Forward planning

The simultaneous increases in NICs and minimum wage rates present affordability challenges for employers, who must navigate rising costs while maintaining compliance. Employers should start by evaluating the financial impact of these changes on their payroll budgets. Sectors with large workforces in lower-paid roles may face particular pressures. Forward planning and financial modelling can help organisations anticipate these additional costs and identify opportunities for efficiency.

The higher Employment Allowance provides some relief, especially for smaller employers. The removal of the £100,000 NIC liability threshold expands eligibility, meaning more employers can offset some of the additional costs. Those previously excluded under the old rules should review their eligibility and ensure they claim this allowance to mitigate the impact of rising NIC rates.

Employers may also need to reassess their workforce strategies in light of these changes. This could involve reviewing staffing levels, working patterns, and remuneration strategies to maintain financial sustainability while remaining competitive in the labour market. Transparent communication with employees about any adjustments will be vital for maintaining trust and morale.

Finally, compliance preparation is essential. Payroll systems will need to be updated to reflect the new NIC thresholds, rates, and minimum wage levels. Employers should ensure their pay practices meet the revised NMW and NLW requirements, as failure to comply could lead to penalties and reputational damage. Reviewing employment contracts and policies now can help avoid last-minute issues as the April 2025 deadline approaches.

For more information or advice, please contact Ella Straker in our Employment team on 02076 650 921, or complete the form below.