National living wage increase 2024
From 1 April 2024, the National Living Wage (NLW) will increase by 9.8% to £11.44, which is a significant increase. As well as that, the age threshold to which the NLW applies to will be lowered from 23 to 21 years old. This represents an increase of over £1,800 to the annual earnings of a full-time worker on the NLW and is expected to benefit over 2.7 million low paid workers. The NLW has rapidly increased over the last few years, and today’s announcement did not buck that trend. The previous annual rate rises rising from £8.92 to £9.50, and then to the current rate of £10.42.
National insurance for employees
The government has also announced they will be cutting the main rate of Class 1 employee NICs from 12% to 10%. This will provide an increase in take home pay for 27 million working people, with the Government estimating that a worker on £35,400 would receive an additional £450 in 2024/25. Unlike the changes to the reduction in the Class 4 NI rate for self-employed workers, these changes will come into effect from 6 January 2024. The aim of this is to incentivise people in work and make sure it pays and it brings the lowest combined tax rate of 30% (basic rate tax at 20% and NIC at 10%) since the 1980s. The cut is welcome but the fiscal drag of frozen personal tax allowances and no changes to the NIC thresholds, mean that some of the savings may quickly disappear.
Where are the employer savings?
If you have found them, then please let People Matters HR know! There were of course other measures announced for employers in respect of business rates and full expensing of capital expenditure. However, from a purely payroll/employment tax outlook, employers have been left out. It was a bit surprising to hear that there was no equivalent employer’s NIC reduction, especially in light of the NLW increase. For employers who have staff paid at the NLW, from next April it will not only cost an additional £1.02 per hour per employee, but there is the additional whammy of 13.8% employer’s NIC on top of that. Some employers are likely to be significantly affected by these changes.
For employers with staff paid well in excess of the NLW, it will be ‘as you were’, with no additional payments to make, but no savings either. Given economic upheaval of the last few years, a tax-neutral outcome from an Autumn Statement is not the worst thing in the world.
People Matters HR specialise in giving organisations business support with HR and Health & Safety designed for all shapes and sizes of business. Get in touch if you need advice.