The 2024 Autumn Budget has introduced significant payroll changes for employers, set to take effect in April 2025. With adjustments to the National Living Wage, National Insurance contributions and statutory payments, businesses need to ensure their payroll systems are ready to handle these shifts. While updating payroll software is crucial, many organisations are turning to managed payroll services as a more efficient and compliant solution.
In this article, we’ll break down the key changes, examine their impact on employers and explore why managed payroll could be the smart choice for 2025.
The National Living Wage (NLW) will rise to £12.21 per hour for workers aged 21 and over, effective April 2025. This represents a 6.7% increase, meaning a full-time employee on the NLW will see an annual net pay rise of approximately £1,000. Employers, however, will face a significant rise in total costs, estimated at over £200 per employee, driven largely by increased National Insurance contributions.
This change narrows the pay gap for younger workers too, with 18–20-year-olds receiving a 16.3% pay increase to £10 per hour. While beneficial for employees, these adjustments may strain small businesses already working within tight margins.
Employer National Insurance contributions will increase from 13.8% to 15%. Additionally, the secondary threshold – the salary level at which employers start paying contributions – will drop from £9,100 to £5,000. These changes will mean higher costs for many employers.
For small businesses, there is some relief in the form of an increased Employment Allowance, which will rise from £5,000 to £10,500. This change aims to offset National Insurance increases, particularly for smaller organisations.
From April 2025, statutory payments like Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP) will see increases. SSP will rise to £118.75 per week, while SMP and related payments will increase to £187.18. For businesses with limited payroll flexibility, these adjustments underline the importance of ensuring software accurately handles statutory entitlements and compliance.
These upcoming changes highlight the need for payroll software that is up-to-date, flexible and capable of handling complex calculations. Businesses should review their systems to ensure they can:
A Software Health Check is a great way to ensure your payroll software is fit for purpose. At Phase 3, our comprehensive system health check service evaluates whether your existing payroll system can manage legislative updates and adapt to your evolving business needs.
For many businesses, the prospect of upgrading software or maintaining in-house expertise to manage these changes is daunting. This is where managed payroll services come into play.
Outsourcing payroll offers businesses several benefits:
At Phase 3, we specialise in providing expert managed payroll services tailored to your business needs. We help you navigate complex payroll changes with ease, offering:
Our team ensures you’re not just reacting to change but proactively managing it. With Phase 3’s support, you can focus on growing your business while we handle the complexities of payroll.
The changes coming in April 2025 present challenges but also opportunities to refine your payroll processes. Whether it’s through a comprehensive system health check or transitioning to managed payroll services, taking action now will ensure your business is ready.
Phase 3 is here to help you navigate these shifts with confidence. Contact us today to discuss how we can support your payroll strategy in 2025 and beyond.
Assad founded Phase 3 in 2004 and is responsible for the strategy, growth and finances of the business.
