Following the Labor government’s autumn budget, employers across the country are left uncertain about what the new legal changes will mean, when they will be implemented and what action needs to be taken urgently. The budget included the following major updates to the law on labor and employment:

National minimum wage and employer national insurance increase

The national minimum wage (NMW) will rise by 6.7 per cent on what was already a large increase last year. From 1 April 2025 the national living wage (for ages 21 and over) and the NMW (for ages 18-20) will rise to £12.21 and £10 respectively. Employers who choose to pay slightly above NMW as an employment incentive are advised to focus on other non-monetary hiring incentives, given the consistent trend in NMW increases.

The budget also included increasing national insurance contributions (NICs) by 1.2 percentage points to 15 per cent and reducing the secondary NI threshold from £9,100 to £5,000 from April 2025; This means employers will now need to pay NI for employees working lower hours and earning lower amounts.

As businesses have to cover these costs, they will likely look to make cuts elsewhere to cover it. Examples include a reduction in annual bonuses, benefits, and pay increases, or a reduction in future hiring and possibly layoffs.

Income tax threshold

The Budget also confirmed that the freeze on employee income tax and NI thresholds will not be extended. From 2028-29 personal tax thresholds will now be raised in line with inflation rates, meaning workers can earn more without having to pay higher taxes.

Business rate relief

For 2025-26, eligible retail, hospitality and entertainment facilities will receive a 40 percent reduction in business rate reliability. This assistance is capped at £25,000 and aims to support employers in the retail, hospitality and leisure sector to cope with current economic challenges. Businesses in these sectors should investigate whether they are eligible for such assistance as soon as possible.

Employee protection

The budget comes on the heels of the announcement of the employment rights bill currently passing through parliament. The government used the budget as an opportunity to reiterate its commitments to protecting employees against unfair dismissal, making flexible working the default, creating a new bereavement leave entitlement, as well as making paternity/paternity leave a first-day entitlement.

Organizations should assess as soon as possible how these proposed changes will affect them and ensure they are ready for the new legislation to come into force. This will include updating policies, procedures, recruitment processes and ensuring appropriate staff training.

Small business support

New small business support legislation has been introduced as part of the Government’s aim to counter some of the financial challenges triggered by the above, such as the rise in employer NICs. To support small businesses with this change, the government has increased the employment allowance from £5,000 to £10,500, removing the previous £100,000 threshold and extending it to all eligible employers.

It is estimated that this will mean that more than 865,000 employers and small businesses will not pay any NICs in 2025. The Labor government hopes this will ultimately reduce the financial burden on employers. Businesses need to find out now whether they are eligible for this support.

Euan Lawrence is a partner in Blacks Solicitors’ employment team