Payroll Changes in 2025: What Employers Should Know

In 2025, employers must prepare for key payroll changes affecting their business and employees. Staying informed is necessary for compliance and keeping employees satisfied.

Key updates include increasing the National Living Wage, tax threshold adjustments, and statutory pay rate modifications. These changes can affect payroll calculations, budgeting, and overall business costs.

This blog will explore the important updates every employer needs to know, from wage increases to tax adjustments and compliance requirements. By staying informed and adapting to these changes, businesses can navigate the evolving world of employment law effectively and support their workforce while minimising potential disruptions.

By breaking the employment allowance 2024/25, businesses can better manage their employment costs and focus on growth while navigating the evolving world of NIC for employers. The small business allowance will also play an important role in helping smaller enterprises mitigate rising costs as they adjust to these new regulations.

National Living Wage Increases

The National Living Wage (NLW) is the minimum hourly wage that employers must pay workers aged 21 and over in the UK. It is set by the government and reviewed annually.

Starting on April 1, 2025, the National Living Wage will increase to £12.21 for workers aged 21 and over, reflecting a commitment to support low-income employees amid rising living costs.

Employers must adjust their payroll systems to comply with these new rates, ensuring fair compensation for all employees while managing increased labour costs effectively.

Income Tax and National Insurance Thresholds

Income Tax and National Insurance (NI) Thresholds refer to the income levels at which individuals start paying taxes and National insurance contributions.

• Frozen Personal Allowance: The personal allowance remains at £12,570 until April 2028. This means employees will not pay income tax on earnings up to this amount, but any wage increases may push them into a taxable bracket.

• National Insurance Thresholds: The Primary Earnings Threshold (PET) is also fixed at £12,570. However, the Secondary Earnings Threshold (SET) will drop from £9,100 to £5,000, meaning employers will incur National Insurance contributions sooner.

• Impact on Payroll Calculations: With the personal allowance frozen and National Insurance thresholds adjusted, payroll calculations must be updated. Employers need to ensure accurate deductions for income tax and National Insurance based on these thresholds.

• Employee Tax Liabilities: Employees earning above the personal allowance will face higher tax liabilities due to the freeze. This could lead to dissatisfaction among employees as their take-home pay may not keep pace with rising living costs, highlighting the importance of clear communication about these changes.

Changes to NIC for Employers

In 2025, there are key changes to National Insurance Contributions (NIC) for employers.

• Rate Increase: From April 6, 2025, the primary rate of employer National Insurance Contributions (NICs) will rise from 13.8% to 15%. This increase will affect payroll expenses for businesses.

• Lowered Secondary Threshold: The threshold at which employers start paying NICs will decrease from £9,100 to £5,000 annually. This means more employees will produce NIC liabilities, increasing costs for businesses.

• Financial Impact on Businesses: These changes will raise overall employment costs, particularly for small and medium-sized enterprises (SMEs). Employers may need to adjust their budgets and pricing strategies to accommodate these higher expenses.

• Employment Allowance Adjustment: To help offset the increased costs, the Employment Allowance will rise from £5,000 to £10,500. This change allows more businesses to reduce their NIC liabilities, improving cash flow.

Statutory Sick Pay (SSP) and Parental Pay Changes

Employers in the UK must stay updated on changes to Statutory Sick Pay (SSP) and Statutory Parental Pay to ensure compliance.

• Statutory Sick Pay Increase: Effective April 6, 2025, the weekly rate for Statutory Sick Pay (SSP) will rise to £118.75 from £116.75. This increase aims to help employees handle rising living costs.

• Duration of SSP: Eligible employees can receive SSP for up to 28 weeks if they are off work due to illness. This policy remains unchanged, ensuring that employees have financial support during extended sickness.

• Parental Pay Updates: Statutory parental pay, including maternity, paternity, and adoption pay, will also increase to £187.18 per week from £184.03. This change supports parents during important family periods.

• Compliance Requirements: Employers must ensure their payroll systems are updated to reflect these new rates and comply with eligibility criteria for SSP and parental pay. This includes ensuring that all employees are informed about their rights and entitlements.

Employers should monitor updates from HMRC to ensure correct payments and payroll adjustments.

Employee Benefits and Salary Sacrifice Schemes

The UK is implementing important changes to employee benefits and salary sacrifice schemes, primarily affecting National Insurance contributions and pension arrangements.

1. New Employee Benefits Employers are introducing sustainability-focused benefits, such as green commuting options and wellness programs, to increase employee satisfaction and support corporate social responsibility (CSR) goals.

2. Salary Sacrifice Tax Changes The government is reviewing the tax treatment of salary sacrifice schemes. Previously, employees benefited from lower tax liabilities, but upcoming changes may reduce these advantages, requiring employers to reassess their offerings.

3. Payroll Adjustments Employers must update payroll systems to reflect new tax rules, ensuring salary sacrifice arrangements remain compliant and avoid unexpected tax liabilities.

Pension Contributions and Tax Relief

In 2025, employers may face increased responsibilities regarding pension contributions, ensuring they meet minimum thresholds and provide sufficient value for employees.

Currently, the minimum total contribution for workplace pensions is 8%, with at least 3% from employers. As regulations evolve, employers must stay updated on any changes to these rates to maintain compliance.

Accurate payroll systems are necessary for managing pension contributions, ensuring correct deductions from employee salaries and timely payments to pension schemes.

Additionally, employees benefit from tax relief on their pension contributions, which improves their savings. Employers should consider these tax implications when calculating payroll and determining employee take-home pay.

Compliance with HMRC’s Digital Transformation

HMRC is increasing its digital services to smooth payroll reporting and improve data collection. Starting April 2025, employers will need to provide more detailed information regarding employee hours worked and payment descriptions through the Real Time Information (RTI) system.

Employers must adapt their payroll systems to accommodate these changes, which include reporting the exact number of hours worked by each employee for accurate tax calculations.

Businesses will need to upgrade their payroll software to effectively gather, validate, and report the additional data required. This may involve investing in new technology or training staff to handle the updated reporting processes.

2025 brings several important payroll changes that employers must address to ensure compliance and support their employees effectively. Key updates include the increase in the National Living Wage to £12.21, adjustments to income tax and National Insurance thresholds, and rising employer contributions.

Ultimately, being prepared for these payroll changes not only helps maintain compliance but also fosters a positive work environment where employees feel valued and supported. As we move into 2025, employers must prioritise these adjustments to increase their operational efficiency and employee confidence.

If you need payroll services, dns accountants can help smooth your payroll processes. Their expert team offers solutions to ensure compliance with the latest regulations, including the Employment Allowance 2024/25. We manage your payroll efficiently, allowing you to focus on growing your business. Contact dns accountants today at 033 0088 3616, email contact@dnsaccountants.co.uk, or book a free consultation to discuss your auto-enrolment needs and how the small business allowance can benefit you in the upcoming tax year.