The impact of NMW and NICs changes in 2025 for salaried staff
Posted on 10th January 2025
The new National Minimum Wage (NMW) and National Living Wage ((NLW) rates are important for low paid employees and apprentices. However, changes to National Insurance Contribution (NIC) thresholds combined with these increases add complexity and costs for small businesses.
NMW/NLW increases in 2025
If you have employees who receive NMW/NLW their pay increases will also add to your NIC bill next year.
Based on a flat 52-week calculation and a 40-hour working week someone receiving the NLW in 2025 will earn £25,397. This compares to £23,795 this year.
Employee receiving NLW in 2024 (£11.44 per hour) |
Employers’ NICS @ 13.8% over £9,100 |
Employee receiving NLW in 2025 (£12.21 per hour) |
Employers’ NICS @ 15% over £5,000 |
Additional costs (salary plus NICs) |
£23,795 |
£2,028 |
25,397 |
£3,059 |
£3,059 |
NMW underpayments for salaried employees
Employers could end up underpaying salaried employees. HMRC is highlighting the need to meet NMW/NLW requirements with payroll controls and by monitoring the hours worked.
To set up the right processes you need to understand the complicated NLW/NMW calculations for salaried employees. Compliance is based on an employee’s ‘calculation year’. Overall, they must receive the minimum hourly rate for total hours worked over the period. If they work for extra unpaid hours they might not receive the minimum rate over the whole year.
Many salaried employees work flexibly when necessary but their employers don’t monitor and record their working time. If you don’t keep working hours records HMRC may ask your employees about their working hours to decide if they are underpaid. Changing into a uniform at work, online training at home and salary sacrifice schemes can all affect the calculations.
NMW underpayment example:
Two full time salaried staff (income each) |
Working hours 40 hours per week x 52 weeks per year |
Working hours 49 hours per week x 52 weeks per year |
£30,000 |
£13.74 ✓ |
£11.77 ✗ |
As an employer, if HMRC find you haven’t paid the minimum wage correctly, you will have to:
make good the underpayments at the NMW rates in effect at the time
pay a penalty of 100% to 200% of the underpayment
update your payroll deductions and amend your PAYE Real Time Information returns, including interest on late PAYE payments
pay the additional employer’s NICs at the relevant rates
check pension auto-enrolment for pension underpayments.
NICs 2024 versus 2025
To help manage your NIC liabilities one thing worth considering is the working patterns of your employees. Here’s an example:
|
2024 |
2024 total |
2025 |
2025 total |
Two full time salaried staff (income each) |
Employers’ NICS @ 13.8% over £9,100 (each) |
|
Employers’ NICS @ 15% over £5,000 (each) |
|
£30,000 |
£2,884 |
£5,768 |
£3,750 |
£7,500 |
Four part-time employees (income each) |
|
|
|
|
£15,000 |
£814 |
£3,256 |
£1,500 |
£6,000 |
Employment Allowance
Eligible employers can reduce their National Insurance liability each tax year through the Employment Allowance. In April next year, the Allowance increases from £5,000 to £10,500 of NICs and the £100,000 cap on NICs liabilities ends.
Companies with two or more employees can claim and it applies until you use the full £10,500 allowance or the tax year ends.
In the examples above, if you’re eligible, you won’t pay employers’ Class 1 NICs in 2025.
Options for small business owners
You might consider reducing the hours of part-time employees earning a little more than £5,000 so NICs don’t apply. To reduce the risk of underpaying salaried employees you need to keep good records. This will allow you to confirm and assess each employee’s working time, time off in lieu, overtime and pay. To make things easier to monitor you might set a single calculation year for all your salaried employees.
If you’re a single company director and don’t have any employees you won’t qualify for the Employment Allowance. If you currently use temporary, freelance or contract workers you could consider creating a salaried position. The Allowance would then cover you and your employee. However, you claim the Allowance through your Real Time Information (RTI) submission to HMRC. This is part of the payroll process and requires some suitable software like Xero.
Salary sacrifice schemes for health insurance or electric cars, for example, can reduce NIC contributions for employers and employees. This is because the pay to which NICs applies is reduced.
You might also consider taking on an apprentice. You may not need to pay Class 1 NICs for an apprentice under 25 on an approved scheme.
We can help you work out the impact of increases in NMW and NICs for your business in 2025. Please get in touch.
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