Chancellor Rachel Reeves has delivered the Government’s Autumn Budget 2025, announcing, several significant changes that will impact employers and employees across the UK. Our employment law team has analysed the key announcements to help you understand what these changes could mean for your business.
Statutory Pay Rates Rising from April 2026
Workers aged 21 and over will see their hourly National Living Wage increase to £12.71 from 1 April 2026 – a 4.1% rise that equates to roughly £900 more per year for someone working full-time hours.
The increases to the National Minimum Wage (NMW) for younger workers are even more pronounced. The NMW for those aged 18-20 will increase to £10.85 per hour (up 8.5%), while the NMW for 16-17 year olds and apprentices will increase to £8.00 per hour (a 6% increase).
While the Government aims to eventually create a unified National Living Wage for all adults, there are concerns within employment sectors that such significant jumps in youth wages, combined with broader cost pressures, might make employers more hesitant to recruit younger workers.
Pension Salary Sacrifice Cap
Another significant change for many employers relates to pension contributions through salary sacrifice schemes. A £2,000 annual cap per employee will apply to National Insurance relief on these arrangements from 2029.
The Government’s rationale centres on cost control and fairness. The Treasury projects that without intervention, salary sacrifice NI relief (which is currently unlimited) would reach £8 billion by 2030-31 (up from £2.8 billion in 2016-17), with higher earners receiving disproportionate benefits. According to the Government’s figures, nearly three-quarters of basic rate taxpayers using these schemes won’t be affected by the new threshold.
It’s important to understand that this measure targets the National Insurance element only – the tax relief on pension contributions (valued at over £70 billion annually) remains untouched. Nevertheless, employers may need to rethink their pension scheme design and employee benefits strategies.
Rising Payroll Costs Continue
These latest announcements follow substantial changes from last year’s Autumn Budget, which saw employer National Insurance contributions jump by 1.2% to 15% in April 2025.
It is anticipated that businesses in hospitality, retail, and care sectors, where minimum wage workers form a larger proportion of the workforce, face particularly acute challenges in managing these escalating overheads. These, of course, are the sectors that are already struggling to meet higher NI costs.
Taking Action: Your Next Steps
Here’s how we suggest approaching these changes:
Budget planning: Build the April 2026 pay increases into your financial forecasts now, and check that your payroll systems can handle the implementation smoothly.
Pension scheme review: Work through the numbers to understand how the 2029 cap will affect your employees, especially those contributing larger amounts through salary sacrifice. You may need to communicate changes or restructure your offering.
Strategic workforce planning: Look at the bigger picture – how will increased NI contributions, higher wages, and new employment rights legislation (currently progressing through Parliament) affect your staffing decisions and business model?
Contract and policy updates: Make sure your documentation reflects the new rates and that automatic increases will apply where required.
Stay informed: While the Government has signalled just one major fiscal event annually, further guidance on implementing these measures will emerge. Keep monitoring for details.
Get In Touch
Helen Frankland is a Partner in our expert Employment Law team.
If you’re concerned about the above subject, contact our employment law specialists today on 0330 111 3131 or via our online enquiry form.
