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Payroll Changes from the Autumn Budget: What Employers Need to Know

The Autumn Budget 2025 introduced several measures that will significantly affect payroll costs and compliance for businesses over the next few years. Here’s what’s changing and what it means for you.
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1. Minimum Wage Increases (April 2026)
From April 2026, the following rates will apply:
• National Living Wage (21+): £12.71 per hour (up 4.1%)
• 18–20-year-olds: £10.85 per hour (up 8.5%)
• Under 18s & Apprentices: £8.00 per hour (up 6%)

Impact:
• Higher wage bills for all employers, especially in labour-intensive sectors like retail, hospitality, and care.
• Knock-on effects on holiday pay, overtime rates, and pension contributions.
• Pressure on pay structures and internal parity as lower bands rise.
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2. Salary Sacrifice Pension Changes (April 2029)
From April 2029, the amount of pension contributions exempt from National Insurance under salary sacrifice will be capped at £2,000 per employee per year. Contributions above this threshold will attract employer and employee NICs.

Impact:
• Increased employer NIC costs on higher contributions.
• Possible reduction in the attractiveness of salary sacrifice schemes for employees.
• Employers may need to redesign benefits packages and communicate changes well in advance.
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3. Frozen Tax & NIC Thresholds
Income tax and NIC thresholds remain frozen until April 2031, meaning more employees will move into higher tax bands as wages rise (known as “fiscal drag”).
Impact:
• Employees’ net pay may not keep pace with gross pay increases.
• Pressure on employers to review pay and benefits to maintain competitiveness.
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What Employers Should Do Now
• Model Future Payroll Costs: Factor in wage increases and NIC changes for budgeting and pricing.
• Review Benefits Strategy: Consider alternatives to salary sacrifice and communicate changes early.
• Plan for Compliance: Update payroll systems for new wage rates and NIC rules.
• Engage Employees: Explain why take-home pay may feel different due to frozen thresholds.