Autumn Budget 2024: Your comments 

The Autumn Budget has delivered a predicted shake-up for Reward and Payroll, with changes that will impact how businesses approach employee compensation and benefits strategies from 2025 onwards.

The Double Impact: NIC and Minimum Wage

The headline changes present a substantial cost challenge for employers. The 1.2 percentage point increase in employer National Insurance contributions (NICs), combined with the reduction in the secondary threshold to £5,000, represents what RSM UK calculates as an effective 3% increase in employment costs. For a business with an annual wage bill of £5 million, this translates to approximately £100,500 in additional NIC costs annually.

Simultaneously, the predicted National Living Wage increase to £12.21 represents a 6.7% rise, with even more dramatic increases for younger workers - 16% for 18-20-year-olds and an 18% uplift for apprentices. As Laura Suter from AJ Bell notes, these combined changes mean it will cost businesses nearly £2,400 more annually to employ someone on minimum wage working 35 hours per week.

“It’s a Budget to batter businesses, with big hikes to payroll costs coming from National Insurance increases and a higher minimum wage."

Small Business Relief and Strategic Responses

The doubling of the Employment Allowance to £10,500 offers some respite, particularly for smaller enterprises. However, as Mathew Akrigg from the Chartered Institute of Payroll Professionals (CIPP) points out, sectors primarily employing younger workers - such as retail, hospitality, and childcare providers - will feel the impact most acutely.

“Such increases are fantastic for employees on low wages and represent a significant increase to many young workers. However, the added burden is piled onto employers, who are obliged by law to pay this rate of pay to their workers. Smaller employers who primarily employ a younger workforce, including retail, hospitality and childcare providers, will especially feel the pinch come April 2025.”

Industry experts are already identifying strategic responses. Matt Russell, CEO of Zest, highlights that 49% of employers have increased investment in their benefits packages over the past year, seeing this as a cost-effective alternative to direct salary increases. Salary sacrifice arrangements are gaining renewed attention, with some businesses reporting significant savings in employer NI contributions through these schemes.

The Skills and Training Dimension

The Budget’s focus on skills and training, particularly through the "Get Britain Working" white paper, signals a shift toward long-term workforce development. Alexia Pedersen from O’Reilly emphasises that with 50% of UK employers implementing headcount and salary freezes, the focus on digital upskilling becomes crucial for maintaining competitiveness.

“With 50% of UK employers adopting headcount and salary freezes in the last twelve months, our latest research reveals that employees are pursuing digital reskilling opportunities in areas like AI and cybersecurity. This proactive approach from UK employees reflects the growing realisation that the country’s economic growth hinges on mastering new technologies.”

Impact on Employee Benefits Strategy

The changes are prompting a fundamental rethink of employee benefits strategies. David Williams from Towergate Employee Benefits notes that while the government’s emphasis on moving "from sickness to prevention" aligns with industry goals, the increased NIC costs might constrain employers’ ability to invest in health and wellbeing programs precisely when they’re most needed.

“Firstly, we will see a “Get Britain Working” white paper which will aim to explore root causes of inactivity and poor health (amongst other things). Our employee benefits industry, which focuses so keenly on workplace health and productivity, will need to ensure that the Government listens to our collective voice and vast experience to help them formulate the right solutions. Employee benefits advisers and providers have been focusing on “getting Britain working” for decades through a host of health, protection and wellbeing tools provided under company benefits.”

Looking Ahead

For reward and payroll professionals, the immediate priority will be preparing for the April 2025 changes. This includes:

• Reviewing and adjusting payroll systems for the new NIC rates and thresholds
• Evaluating current benefits packages for cost-effectiveness
• Considering the implementation or expansion of salary sacrifice arrangements
• Planning for the significant minimum wage increases, particularly for younger workers

The end of the income tax threshold freeze in 2028/29 provides some longer-term planning certainty, but the immediate challenge will be balancing increased employment costs with the need to maintain competitive compensation packages in a tight labour market.

As businesses adapt to these changes, the role of reward and payroll professionals becomes increasingly strategic, requiring careful navigation of cost pressures while ensuring employee engagement and retention remain priorities.