News & Events
Understanding the pay-related changes coming in 2025 and the impact on your business
6th February 2025
The latest Budget introduced significant changes affecting payroll costs for businesses, which are due to come into effect in April 2025. With increases to the National Living Wage and employer National Insurance Contributions employers need to understand how these updates are likely to impact their payroll expenses and budgeting.
Here, Rowleys’ Payroll Manager, Rebecca Gotch, shares a breakdown of key changes and some examples to help illustrate the potential impact of the pay-related changes coming in 2025.
Key payroll changes for 2025/26
National Living Wage (NLW) increases:
- For workers aged 21 and over, the NLW rises from £11.44 to £12.21 per hour.
- For workers aged 18-20, the NLW increases from £8.60 to £10.00 per hour.
Employer National Insurance Contributions (NIC):
- The amount of NIC employers is expected to pay will rise from 13.8% to 15%.
- The threshold for NIC is also decreasing – currently employers pay NIC on earnings over £758 per month, from April NIC will be payable on earnings over £416 per month.
- Also, rising wages mean higher NIC liabilities for businesses, increasing the per-employee cost of employment.
Examples of how these changes translate to real costs for employers
Examples for those who pay their employees on a weekly basis
Example 1: 21-year-old employee (40 hours per week, paid weekly)
2024/25:
- Weekly salary: £457.60 (40 hours @ £11.44)
- Employer NIC: £39.00
- Minimum employer pension contributions: £10.13
- Total weekly cost to the employer: £506.73
2025/26:
- Weekly salary: £488.40 (40 hours @ £12.21)
- Employer NIC: £58.86
- Minimum employer pension contributions: £11.05
- Total weekly cost to the employer: £558.31
Difference: £51.58 increase per week
Example 2: 18-year-old employee (40 hours per week, paid weekly)
2024/25:
- Weekly salary: £344.00 (40 hours @ £8.60)
- Employer NIC: £23.32
- Total weekly cost to the employer: £367.32
2025/26:
- Weekly salary: £400.00 (40 hours @ £10.00)
- Employer NIC: £45.60
- Total weekly cost to the employer: £445.60
Difference: £78.28 increase per week
Examples for those who pay their employees on a monthly basis
Example 1: Employee 21 years old paid monthly working 40 hours per week:
2024/25
- Monthly salary: £1,988.27
- Employers NIC: £169.78
- Min employer pension contributions: £44.05
- Total monthly cost to the employer: £2,202.10
2025/26
- Monthly salary: £2,122.10
- Employers NIC: £255.92
- Min employer pension contribution: £48.06
- Total monthly cost to the employer: £2,426.08
Difference: £223.98 increase per month
Example 2: Employee 18 years old paid monthly working 40 hours per week:
2024/25
- Monthly salary: £1,494.68
- Employers NIC:£101.66
- Total monthly cost to the employer: £1,596.34
- 2025/26
- Monthly salary : £1,738.00
- Employers NIC: £198.30
- Total monthly cost to the employer: £1,936.30
Difference: £339.96 per month
Employment Allowance updates
To help offset rising costs, the Employment Allowance will increase from £5,000 to £10,500 in 2025/26, offering employers some relief on NIC obligations.
Payrolling benefits
It’s also worth noting that from April 2026, employers will be required to report benefits in kind through their payroll, simplifying compliance for both income tax and Class 1A NICs. It’s worth getting ahead of the game and payrolling your benefits from April 2025. Taking early action will put you in a better position for when this process becomes mandatory from April 2026.
Find out more about payrolling benefits.
How we can help
These payroll changes present challenges for businesses aiming to manage costs and maintain compliance. Our Payroll Health Check service ensures your business is prepared, helping you optimise your payroll operations while navigating regulatory updates.
Contact us today to find out more or to schedule your Payroll Health Check.