October was a milestone month for the Labour Government’s ‘Making Work Pay’ initiative, with the introduction of the Employment Rights Bill, significant increases to the National Living Wage (NLW), and the increase in Employer’s National Insurance Contributions (NIC). There are certainly a number of positive movements for working people, however, they may come at a cost to employers.

It will be interesting to see how more attractive working conditions impact the economically inactive, particularly those in Gen Z. The number of young people not in work or education has spiked post-COVID and according to the latest data from Northern Ireland Statistics and Research Agency (NISRA) and Office for National Statistics (ONS) this has been particularly prevalent in Northern

Ireland - youth inactivity among 16-24 year olds stands at 49.03%, compared to the UK average of

41.7%. The rise in hourly rates, investment in the NHS, alongside the NI Economy Minister Conor Murphy’s launch of the new skills interventions, will hopefully incentivise young people to return to the workforce.

On the contrary, the Budget announcements will land harder on employers, many already feeling the pressure from the past few years of high inflation and flat growth.

Beyond the additional requirements and costs associated with the Employment Rights Bill, the combined rise in the NLW and employer’s NIC will lead to a significant increase in employer costs. Looking at the employer’s NIC threshold change alone, this is an additional cost of £615 per employee per year and those businesses with high volumes of part time workers will see the largest impact as more workers are brought into charge for Employer’s NIC. The increase in the Employment Allowance offers some protection for smaller employers, which will be a welcome relief.

With both increases taking effect from April 2025, employers will be now looking at understanding the impact. This includes pay differentials, pay bands and how they will maintain competitiveness for attraction and retention. Many employers make use of salary sacrifice arrangements, which will now be more attractive and mitigate some of the impact of the NIC rate increase. However, additional care will be needed as more employees may be paid close to the new level of NLW.

For employers and employees in cross border employments, it is welcome that overseas workday relief will continue for affected employees working fully or partly outside the UK, and employers can look forward to the simplification of current payroll processes (the ‘section 690’ regime). There are however some material changes including introducing a cap on the annual relief available. The focus for employers will now be on understanding the impact of these changes, especially where they rely on foreign talent, and what these additional complexities mean for their employees.