Following the Chancellor’s Autumn Budget Statement 2023, here is a summary of the key measures and announcements affecting payroll and pension for businesses to navigate.
What to change on your payroll system
Class 1 Employee National Insurance Contributions
The main rate for Class 1 Employee National Insurance Contributions (NICs) will be reduced by two percentage points to 10% from 6 January 2024 for earnings between the primary threshold and the upper earning limit, giving employees a small boost to their take-home pay.
- Employee Class 1 NIC – 10% (6 January 2024)
- Primary threshold – £12,571
- Upper earning limit – £50,270
The National Living Wage
From 1 April 2024, the National Living Wage (lowest wage legally payable to workers) will:
- apply to all employees aged 21 and over (currently 23 and over), and
- increase from £10.42 to £11.44/hour, or a 9.8% rise.
To remain compliant with new changes to the National Living wage, businesses must ensure employees aged 21 and over receive the minimum pay per hour they are entitled to.
National Minimum Wage
It’s important to note, the National Living Wage and the National Minimum Wage, while often confused, are distinct. The National Minimum Wage is the minimum legal wage for younger workers and apprentices. The National Minimum Wage also been updated:
- Employees aged 18-20, from £7.49 to £8.60.
- Employees aged under 18, from £5.28 to £6.40.
- Apprentices under 19, or over 19, but in their first year, also from £5.28 to £6.40.
These changes will also take affect from 1 April 2024.
What will remain the same on your payroll system?
The Chancellor announced to keep the certain rates and thresholds the same for the 2024-2025 tax year, including:
- Employer’s Class 1 National Insurance rate.
- Employer’s Class 1A National Insurance rate (on benefits and termination payments over £30k).
- Employer’s Class 1B National Insurance rate (on benefits reported via a PAYE Settlement Agreement (PSA)).
- National Insurance thresholds, including the Lower Earnings Limit (the point at which an employee becomes eligible for statutory payments and is used for state pension eligibility).
- Personal tax allowance.
- Rates of income tax within the rest of the UK.
- Employment allowance.
- Company car benefit rates.
What to watch out for
Under the current automatic enrolment system, employers are required to offer all ‘eligible’ staff a pension plan and enrol them into it – but it’s the employers that choose the pension scheme.
That could potentially change – the Chancellor announced to launch a consultation on the concept of a ‘pension pot for life’ which will aim to gather industry thoughts/comments on whether it makes sense to introduce new rules making it the employee’s decision where their workplace pension savings go. This would let the employee pick one pension and keep it from job to job over their whole career while still benefiting from employer contributions.
While the concept will benefit employees in some respects, it would be very complicated for businesses. Instead of only needing to keep track of one pension scheme, employers would be faced with managing a different scheme per employee.
Encouraging more people back into work
The Chancellor confirmed plans to phase out certain benefits and step-up efforts to monitor those receiving welfare. This is all part of the ‘Back to Work’ plan, which aims to encourage 1.1 million people back into work.
The Chancellor also confirmed measures to allow working parents to claim free childcare will go ahead. This will apply to children aged 1-2 years old, and parents will be able to claim up to 30 hours a week. For more information see Budget 2023: Everything you need to know about childcare support – The Education Hub
Our thoughts on the Autumn Budget
The announcement to lower employee NICs, increase national living and minimum wage, changes to the childcare support and the proposed concept of ‘pension pot for life’ provides some good news for employees, especially for those on low incomes.
On the other hand, with no changes announced to the employer NICs, and higher national minimum and living wage there will be continued added pressure on businesses to meet the new basic pay in the current economic and business climate. The proposed changes to pensions will only add to those costs and add more pressure in the future.
How we can help
We’re passionate about helping businesses continue to look out for their employees while keeping costs down. If you and your business find some of the changes announced in the Budget Statement challenging, be it the added financial strain to your business or the practical implementation of the proposed changes, speak to us for an informal chat.
For more information about unburdening your business from payroll and pension compliance visit our SMART Employment page and read more about supporting your employees’ financial wellbeing, emotional wellbeing and physical wellbeing.
Amrik Birdi, Head of Operations at Growth Partners
Amrik has a wealth of knowledge in pensions having joined Growth Partners from KPMG where he was responsible for advising companies and trustees on independent DC provider procurement exercises, DC investment strategy review, DC pensions strategy review, automatic enrolment compliance, and meeting ongoing governance requirements. Amrik spent three years before this as a Pensions Guidance Specialist at Pensions Wise helping members understand their pension and retirement options, empowering them to take control of their retirement journey. With a Diploma in Regulated Financial Planning and Certificate in DC Governance, combined with a Degree in Economics, Amrik is a fully qualified pensions consultant and able to offer strategic support to our clients on their options for workplace pension schemes and auto-enrolment.