Payroll management is of utmost importance for any business, ensuring employees receive accurate and timely payments. However, staying compliant with ever-evolving legislation can be a challenge.
In 2025, key changes to payroll regulations will impact how businesses operate. We'll explore these changes and offer advice on how to adapt successfully.
Why payroll legislation changes matter in 2025
Failing to keep up with payroll legislation can lead to costly penalties and harm employee morale. Inaccurate payments or deductions can damage your reputation as an employer and create significant financial liabilities. By understanding and implementing the 2025 updates, you can maintain compliance and ensure your employees receive their due pay.
Key payroll legislation changes in 2025 and their impact
Here’s a summary of the key payroll changes for the 2025/26 tax year to help you prepare:
National Insurance Contributions (NIC) changes
- Employee contributions: The primary threshold at which employees start paying Class 1 NIC remains at £12,570 annually. The upper earnings limit, at which the higher rate of Class 1 NIC applies, is £50,270.
- Employer contributions:
- From 6 April 2025, the secondary threshold at which employers begin paying secondary Class 1 NICs will decrease from £9,100 to £5,000 per year until 6 April 2028 and will then increase in line with the Consumer Price Index (CPI) thereafter.
- Employers' secondary Class 1 NIC rate will increase from 13.8% to 15%.
Employment allowance
The Employment Allowance reduces employers' NIC liabilities and will rise from £5,000 to £10,500 annually. Additionally, the restriction preventing employers with NIC liabilities exceeding £100,000 from claiming this allowance will be removed, meaning it will be expanded to all eligible employers with employer NICs bills from 6 April 2025.
National Living Wage (NLW) and National Minimum Wage (NMW) updates
The National Living Wage (NLW) will increase from £11.44 to £12.21 an hour from April 2025. The National Minimum Wage (NMW) for 18 to 20-year-olds will also rise from £8.60 to £10.00 an hour.
Statutory payments: what’s changing in 2025
- Statutory sick pay (SSP): From 6 April 2025, SSP will increase to £118.75 per week.
- Statutory maternity pay (SMP): SMP will be 90% of the employee's average weekly earnings (before tax) for the first six weeks. For the next 33 weeks, it will be £187.18 or 90% of the employee's average weekly earnings, whichever is lower.
- Statutory paternity pay (SPP): SPP will match the SMP lower rate at £187.18 per week or 90% of average weekly earnings, whichever is lower.
Pension auto-enrolment: what employers need to know
There are no significant changes to pension auto-enrolment legislation for 2025. Employers must continue to:
- Enrol eligible employees into a qualifying pension scheme.
- Ensure minimum contributions are met: 8% of qualifying earnings, with at least 3% contributed by the employer. The earnings thresholds for auto-enrolment remain unchanged:
- The earnings trigger for automatic enrolment is £10,000.
- The qualifying earnings band is £6,240 to £50,270.
How payroll changes will affect businesses
The combined effect of the increased employer NIC rate, lowered secondary threshold and increased National Living Wage and National Minimum Wage will mean higher employment costs for many businesses. However, smaller employers will benefit from the increased Employment Allowance, which now has broader eligibility.
Futrli solutions: Practical tools to manage payroll transitions
Managing payroll efficiently requires more than just understanding the legislative changes. You need tools that allow you to forecast, plan, and adapt to these changes proactively. This is where Futrli can help.
- Forecasting the financial impact of payroll changes: Futrli's forecasting tools allow you to model the financial impact of payroll changes on your business. You can accurately predict your future payroll costs and adjust your budgets by inputting the new NIC thresholds, statutory pay rates, and pension contribution rates. This helps you avoid unexpected financial strain and ensures you have sufficient funds to meet your payroll obligations.
- Automating payroll insights: Futrli provides insightful reports and dashboards that help you understand your payroll data at a glance. Over time, you can track key metrics, such as payroll costs, NIC liabilities, and pension contributions. This allows you to identify trends, spot potential issues, and make informed decisions about your workforce.
- Exploring payroll scenarios for better planning: With Futrli, you can create different scenarios to explore the potential impact of various factors on your payroll. For example, you can model the cost of hiring new employees, raising pay, or changing your pension scheme. This helps you make strategic decisions about your workforce and plan for future growth.
Using Futrli, you can move beyond simply processing payroll to proactively managing it. You can better understand your payroll data, forecast future costs, and make informed decisions supporting your business goals.We understand that keeping up with payroll legislation can be time-consuming and complex. That's why we're here to help. Futrli provides the tools and insights you need to navigate these changes confidently. Our platform simplifies payroll management, allowing you to focus on what matters most – your business and your employees.