Autumn Budget 2025: What it Means for Employers

The economic backdrop for the Autumn Budget 2025 was challenging. Despite the Office for Budget Responsibility upgrading growth in the UK to 1.5% in 2025, wage pressures and inflation are persistent. Against that backdrop, the Budget contains measures that will have implications for employers and employees in areas such as wages, tax, workforce strategy and benefits.

Key changes affecting employers

Here are the main areas which employers need to be aware of, and the implications of each.

1. Employer National Insurance & Payroll Tax Burden

• Despite National Insurance Contributions (NICs) having remained on the table for review, in particular either raising the employer NICs rate, lowering the threshold at which employer NICs apply, or both, no further changes were announced.
• The freeze on personal tax thresholds from 2021-2028, previously introduced by the Conservative government, will be extended for a further three years. This will apply to all income tax and National Insurance thresholds. Known as a ‘stealth tax’, this leads to more people falling into higher tax bands.

Implications for employers:

• No further changes to employer NICs will be welcome news for employers, particularly those who have had to tighten decisions on workforce expansion, reduce headcount and increase prices since the April 2025 changes.

2. National Minimum Wage & National Living Wage increases

The National Living Wage and minimum wage levels will rise. This continues the government’s commitment to “fair pay” and reducing in-work poverty.

The following rates will apply from April 2026:

• Over-21s will receive 50p more per hour, rising to £12.71 (a 4.1% increase).
• Workers aged 18 – 20 will receive 85p more per hour, rising to £10.85 (an 8.5% increase).
• Under 18s and apprentices will receive 45p more per hour, rising to £8.00 (a 6% increase).

Implications for employers:

• Pay budgets will need to absorb higher base hourly rates. Knock-on effects include holiday pay, overtime rates, and pension contribution calculations.
• Structures of pay bands may need revisiting to avoid wage compression (i.e., when the bottom of the pay scale moves up but other layers don’t).
• Employers in labour-intensive sectors with many lower-paid staff (e.g., retail, hospitality, care) will feel the impact most keenly.

3. Support and opportunity for young people

• The government has announced funding to make training for under 25s apprenticeships completely free for small to medium sized business.
• £820 million will be invested into the new youth guarantee over the next three years to give young people support and opportunity. This guarantees every young person a place in college, an apprenticeship or personalised job support. After 18 months on Universal Credit without ‘earning or learning’, 18 – 21-year-olds will be offered guaranteed paid work.

Implications for employers:

• Employers should be ready to seize any training grants and funding and other related benefits: map skill gaps now and align training and recruitment strategies with upcoming policy.

4. Pensions Salary-Sacrifice

• As anticipated, pension salary-sacrifice arrangements will be reformed, with changes coming into effect from April 2029 onwards to give employers and employees time to adjust. Salary sacrificed pension contributions above an annual £2,000 threshold will be taxed in the same way as other employee pension contributions.

Implications for employers:

• Employers offering pensions salary-sacrifice schemes should take steps now to prepare for the change.
• This change will have a financial impact on many employees. Communication to employees about any changes will be important.

Strategic Considerations for Employers Arising from the Autumn Budget 2025

Given the above potential changes, here are broader strategic actions employers should consider:

• Scenario modelling & cost-stress testing: Build in scenarios to plan for the impact of a higher wage cost base, particularly for employers in retail, hospitality and care.
• Workforce design & productivity focus: With cost pressures rising in some sectors, employers should emphasise how roles, hours and staffing models link to productivity. Multiskilling, automation, flexible working and role redesign all become more important.
• Review of pay structures and internal equity: As minimum pay rises, mid- and higher-level pay bands must be reviewed to ensure they remain differentiated and motivating.
• HR & payroll system readiness: Ensure that payroll, HR information systems and contractual documentation are up to date and able to adapt to changes to minimum wages and pensions salary-sacrifice.
• Employee communications & engagement: Clear communication to staff around costs pressures, and changes to minimum wages and pensions salary-sacrifice, will help with retention and morale.
• Grants and funding: Take advantage of schemes relating to training and employment of young people where it’s beneficial to do so.