As the UK government announces its Autumn 2024 budget, employers across the country are paying close attention to understand how new fiscal policies will affect their operational costs. With significant shifts expected in areas such as wages, tax, pensions, and employee support programs, businesses will need to carefully assess their budgets to prepare for these changes.

In this blog, we’ll explore the key highlights of the Autumn 2024 budget, focusing on the impact on employer costs and what businesses can do to manage them effectively.

Key Highlights of the Autumn 2024 Budget

The Autumn 2024 budget contains several changes aimed at supporting workers, tackling inflation, and promoting economic growth. Here are the primary components likely to affect employer costs:

1. Increase in the National Living Wage (NLW)

• The government has announced an increase in the National Living Wage, taking it to £13 per hour, effective from April 2025. This rise is intended to help offset the rising cost of living for workers, but it will directly impact payroll expenses for businesses.
• Employers will need to review and adjust their wage structures, not only for minimum wage earners but potentially for those paid just above the threshold to maintain pay differentials and employee morale.

2. Employer National Insurance Contributions (NICs) Adjustments

• The budget introduces an increase in the employer National Insurance Contributions rate, raising it by 1%. This adjustment is part of the government’s plan to fund public services and address the fiscal deficit, but it does add a notable cost burden for employers.
• Businesses will need to budget for this additional expense in their overall payroll, particularly if they employ a large workforce, as NICs are calculated based on each employee’s earnings.

3. Expansion of Sick Pay and Parental Leave Support

• Following recent employment law changes, statutory sick pay (SSP) is now available from day one and for all workers, with no earnings threshold or waiting period. While this change enhances employee support, it also increases employer costs associated with sick leave.
• Additionally, new parental leave provisions allow more paid leave for both parents, which employers must factor into their staffing budgets and productivity planning.

4. Introduction of a Genuine Living Wage

• The government’s emphasis on a “genuine living wage” means that large employers are encouraged, and may soon be required, to offer higher pay rates that reflect regional costs of living. While this is initially encouraged on a voluntary basis, employers in regions with higher costs of living may soon face pressure to match or exceed the NLW.
• For employers, this could mean a gradual shift in wage expectations, leading to higher labour costs, particularly in urban areas with higher living costs.

5. Revised Apprenticeship Funding and Employer Incentives

• In a bid to boost skills development, the budget includes increased funding for apprenticeships, with new employer incentives aimed at encouraging businesses to hire apprentices.

• While this funding reduces some costs for businesses, especially those looking to invest in young talent, employers should be prepared to dedicate resources to training and development.

6. Mandatory Disability and Ethnicity Pay Gap Reporting

• Large employers (those with over 250 employees) are now required to report on disability and ethnicity pay gaps, in addition to gender pay gaps. This policy aims to drive transparency and tackle inequality in the workplace.
• While these reporting requirements don’t directly increase wages or other immediate costs, they require investment in HR resources to gather, analyse, and report data accurately. Additionally, employers may need to address any discrepancies revealed by the data, potentially impacting pay structures.

7. Increased Pension Contributions for Employers

• To ensure more sustainable retirements, the budget proposes a phased increase in employer pension contributions, gradually raising the minimum contributions over the next few years.
• For employers, this means higher contributions to workplace pensions, so it’s essential to build this into long-term budgeting.

Managing Increased Costs: Strategies for Employers

As employers navigate these changes, here are some practical strategies to help manage the financial impact:

1. Plan for Wage Adjustments Early

• Review current wage structures to anticipate the increased costs from the new National Living Wage. Make adjustments where necessary to ensure compliance and maintain pay equity across different employee levels.
• Communicate upcoming changes to your team to ensure transparency and prevent employee dissatisfaction.

2. Re-evaluate Staffing Needs and Productivity

• With higher employer costs on the horizon, many businesses may benefit from revisiting staffing needs. Consider if there are ways to increase productivity without necessarily expanding headcount.
• Investing in technology, automation, or flexible work arrangements can help reduce operational costs while improving efficiency.

3. Enhance Employee Retention to Avoid Recruitment Costs

• Retaining employees can save significant costs associated with recruitment, onboarding, and training. Foster a positive workplace culture, offer development opportunities, and ensure that employee support programs are up to date.
• Implement stay interviews and regular feedback sessions to address employee concerns and reduce turnover.

4. Explore Apprenticeships and Government Funding

• With increased funding and incentives for apprenticeships, businesses can take advantage of these resources to bring in fresh talent at a lower initial cost. Apprenticeships not only offer a way to manage immediate labour costs but also build a skilled workforce for the future.
• Work with local apprenticeship providers to understand the available programs and find the best fit for your business needs.

5. Prepare for New Reporting Requirements

• Begin preparations for the new disability and ethnicity pay gap reporting requirements. This might involve auditing current data systems, ensuring HR teams are equipped to handle additional analysis, and creating action plans to address any pay disparities.
• If your business lacks the necessary in-house resources, consider working with an HR consultancy that can provide expertise in data analysis and reporting compliance.

6. Optimise Benefits and Rewards

• As costs rise, consider optimising your benefits package. Look for benefits that offer high value to employees at a relatively low cost to the business, such as flexible working arrangements, mental health support, and career development opportunities.
• Benefits that improve work-life balance and employee wellbeing can be attractive to staff without directly increasing wage bills.

7. Budget for Increased Pension Contributions

• Plan for the phased increases in employer pension contributions by including them in your long-term financial forecasts. Consider speaking to a financial advisor about the best ways to manage these changes, especially if you have multiple pension schemes.

Preparing for 2025 and Beyond

While the Autumn 2024 budget has introduced significant changes, it’s essential to view these adjustments as part of an ongoing transformation in the UK’s employment landscape. Labour’s proposed employment reforms and economic initiatives emphasise employee support, wage equality, and skills development. Employers who prepare now can turn these changes into opportunities for growth, attracting and retaining top talent in a competitive market.

The Autumn 2024 budget has undoubtedly placed a heavier financial responsibility on employers, but it also offers opportunities to enhance workplace practices, improve employee satisfaction, and strengthen compliance with evolving regulations. By taking proactive steps, employers can balance their costs with strategies that support sustainable growth.

At Phil Collier Associates, we’re here to help businesses navigate these changes. Our expert HR consultants can assist with everything from wage structure reviews to compliance with new reporting requirements, ensuring your business is prepared for the future. Reach out today to discuss how we can support your business through these upcoming changes.