New legislation and a tight budget - is your business ready?
A new Government, reformed employment legislation and a very tight budget set’s the foundation for businesses as we draw closer to 2025. With many changes on the horizon, this is a daunting time for employers who are currently navigating the proverbial spanners in the works. However, change can become opportunity with the right strategic approach and proactive planning. The principles of the first Labour budget in almost 15 years were outlined by Rachel Reeves as Economic Stability and Growth. With expected changes to employee rights in 2025, this budget further signals the new Government's intention to protect workers.
We’re not going to recap the entire lengthy Autumn budget and Employment Rights Bill Proposal, but we have identified some key changes that impact recruitment, alongside suitable solutions.
So, What’s Changing?
NI Increase for Employers | A tax on jobs?The most concerning element of last week's budget for employers will be the 1.2% increase in employers' national insurance to 15% in April 2025. Although lower than the 2% increase anticipated in the lead up to the budget, it is still a significant increase for a high percentage of UK Employers, especially when coupled with the reduction in the secondary national insurance threshold. Rachel Reeves announced that the threshold at which employers begin to pay national insurance on an employee's salary will fall from £9,100 per annum to £5,000. There is some good news however! Smaller business will be protected by an increase in the employment allowance from £5,000 per year to £10,500. It is estimated that 865,000 employers won’t pay any National Insurance at all next year and over one million will pay the same or less as they did previously. Employers located in UK Investment Zones, or 'Special Tax Sites' won't pay NI for 36 months on each new starter, up to a limit of £25,000 per year. This is an extension of the policy currently applied to Freeport Tax sites. These measures are expected to raise a huge £25bn in taxes. The messages are a little mixed for employers, but the predicted impact is a fall in employer hiring intention. Business who are planning to hire will need to review their budgets and consult on hiring strategies for the upcoming years. |
New Legislation and a Tight Budget. We’re ready. Are you?
National Minimum Wages rising by 6.7%The chancellor announced that the national minimum wage will increase by 6.7% in April 2025 to £12.21. This is higher than the Low Pay Commission recommendation of £12.10. The pay rise will benefit over 3 million of the lowest paid workers across the UK, with full time workers receiving an extra £1400 per year. A steeper increase for those aged between 18-20 marks the first step in abolishing the age banding for NMW rates as Labour move towards a single adult rate. Apprenticeships: Increasing from £6.40 per hour to £7.55 Despite the cost being felt by UK Employers, workers may not feel that much better off as the personal tax free allowance and Primary National Insurance rates remain frozen. This policy, that has been in place since 2022, creates fiscal drag and results in a proportion of the pay rise going straight to the taxman. The chancellor did however pull a small rabbit out of the hat when she announced that thresholds would be unfrozen from 2028, and would begin to move with inflation. This will be welcome news to taxpayers. Business RatesEmployers in the hospitality, leisure, and retail sectors will have their 75% business rates discount, which is due to expire in April 2025, replaced by a 40% relief in 2024/25. We can expect to see two new lower rates introduced in 2026/27. Although the extension will be encouraging for employers in these sectors it still means that many businesses will see their business rates nearly double (rather than quadruple!). |
With Labour pledging not to increase tax for 'working people', there was only one place to turn to fill the £20bn fiscal black hole, with business' footing the bill. The Institute for Government (IFG) think tank stated that the changes create a gap between the cost for employers to hire a worker and the worker's actual earnings. Despite Reeves believing that businesses will absorb the cost by cutting costs or taking less profit, the reality is this means businesses must pay a higher national insurance rate on a larger portion of employee salaries, and will drive down the demand for talent. We do not expect another fiscal update until next Autumn, and employers face a tough year ahead with significant financial headwinds. The budget coincides with proposals to reform employments rights, and this also must be considered by employers when looking to their 2025 hiring strategies.
Employment Rights Bill Proposal
“Day One” rights encompass a long list within the proposed reform, seeing employees have further protection and statutory leave, alongside the right to request flexible working. There are also plans to remove the 2-year qualifying period for Unfair Dismissal, therefore, companies will need to align with the 5 reasons for fair dismissal from day one.
This will create the need for more robust internal procedures and strong leadership, whilst highlighting the importance of hiring the right people first time.
Head over to our last blog to learn more about strategic hiring, specialist recruitment and workforce planning:
What Can Employers Do?
For business who are looking to grow, and had budgeted to hire in 2024/25, the reactive approach to these changes may be to pause all hiring, strengthen in-house teams, and increase workload to meet business demands. Adversely, this short-term fix could result in lower employee engagement, higher turnover, and decreased performance – all having a far more detrimental impact on your business in the long term.
A difficult position for business leaders, and if commitment to hiring is your main concern, we suggest something a little different…
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Temporary StaffingUtilise a flexible temporary workforce, reduce cost paying for workers when you need them. 24/7 support, with a single point of contact who feels like part of your team. |
Temp to PermTrial your new hire on a 12-week temporary basis first. Reducing the risks (and the paperwork) during the first few months to ensure you find the right team fit. |
Employers can also consider contracting self employed individuals, which provide similar benefits to using agency staff. Employers will need to consider the off payroll legislation for contractors [IR35].
| “While contractor day rates may appear higher than permanent staff costs, the long-term savings are significant – there’s no ongoing salary commitment once a project ends, no pension contributions and, critically, no employer national insurance contributions to worry about.” | |
Zero Hours Contracts
We are aware of the planned changes to zero hours contracts. The Department for Business and Trade has published a consultation on how to apply zero hours measures to agency workers and we wait to see the result before we can advise.
If you are looking to hire permanently but concerned about the risks and costs of getting it wrong, we’ve got that covered too.
Head over to our last blog to learn more about strategic hiring, specialist recruitment and workforce planning:
If you did want a much longer read, and some additional information, check out our sources below:
A full report on the Autumn 2024 budget can be found here
Further insight and guidance around employment legislation changes can be found here
Smith & Reed Recruitment have been helping business find the right people for over 40 years. For more information about how we can help visit our 'Looking for Staff' information page, or contact us.