The Autumn Statement last week confirmed that the National Living Wage will rise to £11.44 per hour from April 2024. This is an increase of £1.02 per hour for those aged 23 and over. The Chancellor also announced that the National Living Wage would be payable to 21 and 22 year olds from April 2024 increasing their pay by £1.26 per hour.
This rise increases the minimum annual salary for a standard 37.5 hour working week to £22,368.06. Many businesses pay their employees more than the National Living Wage but of course any rise means reviewing all employee wages to keep them at a similar level. No employee wants to find that they are now on the minimum when they were previously earning £1 above the National Living Wage. So this rise has a knock on effect on all pay rates except where salaries are significantly higher.
Whilst the Chancellor has reduced National Insurance Contributions from 12% to 10% for employees, there has been no change to the contribution an employer has to make.
The increase in hourly rate, therefore also means an increase in employer National Insurance Contributions and employer Pension Contributions because employees will be earning more.
So what will it cost?
An employee who is being paid £10.42 per hour for 2023-24 costs the employer an additional 71p for the NI and Pension Contributions (based on a 37.5 hours working week). At the new rate in 2024-25 this will add 88p to the hourly rate bringing the total hourly cost to £12.32.
This will be tough for businesses in hospitality, pre-school education and other types of business where margins are very low.
How much will employees gain?
Employees will benefit by the 2% reduction in employees NI in January, February and March by 8p for every hour they work. If their earnings are below the threshold they won't pay National Insurance Contributions anyway. In 2024-25 they will, of course, be paying more than they are currently because their earnings will be higher.
As the threshold for paying tax and National Insurance and contributing to a pension hasn't been changed, more employees who may not have been paying tax or NI and pension contributions before may find themselves having deductions through the payroll for these.
We provide payroll and auto enrolment services to employers in many different types of business and we will be reviewing all wages so that we can identify the employees who need to have an increased rate so that we can advise employers well in advance of April. Businesses need time to plan and budget for these changes because they will impact their bottom line and therefore they will need to look at their pricing.