NickBustin

Source: HaysMac

As 2025 starts to unfurl, the challenges faced by employers and employees alike are becoming more apparent. The changes announced in the Autumn Budget will come into effect from April, which will see employer national insurance (NI) rise from 13.8% to 15%, and a reduction in the threshold when the employer is due dropping to £5,000. At this point we will also see an uplift in the national minimum and living wage rates, with the upper rate going up to £12.21 per hour.

The overall impact of the changes will cost employers an average of £650 per employee, with the amount being closer to £1,400 for employees earning around £75,000 per annum. Employers are looking at a variety of ways to help mitigate the impending changes, including wage freezes or reducing headcount.

While employers are looking at not replacing employees, we are starting to see employers entering into redundancy programmes, which brings with it the cost of making people redundant and the ensuing tax. Consideration will need to be given to determining the tax treatment of the termination package, including payments in lieu of notice, redundancy, and post-employment notice pay. Employers will also need to analyse whether there will be ongoing provision of benefits after employment ceases and evaluate employer NI liabilities on redundancy payments that exceed £30,000.

Employers are also looking at either setting up or refreshing any pre-existing pension salary sacrifice arrangements. Under a pension salary sacrifice arrangement, an employee agrees to forgo part of their salary and in exchange the employer pays a corresponding amount into the pension scheme. The employer will benefit, because itsa NI liabilities are based on the employee’s post-sacrifice earnings.

Careful planning is required as part of putting in a pension salary sacrifice arrangement. This is to ensure a full reworking of the employment contract has been conducted, and that employees are made aware of what the changes will mean, as well as payroll and pension providers.

Employers will need to plan ahead for the introduction of the mandatory payrolling of benefits in kind from April 2026. While we are waiting for the legislation, which is due to be published in the summer, consideration will need to be given to reviewing the benefits provided and consulting with payroll and benefit providers. Employers will also need to establish how information will be communicated with employees. While over a year away, it is recommended to start planning now.

Nick Bustin is director and head of employment tax at HaysMac