Payroll Changes to Look Out For in 2024
On 22 November 2023, Chancellor Jeremy Hunt announced the details of the Autumn Statement 2023, which included some payroll changes. He discussed several measures to be implemented, claiming the Government would “reduce debt, cut taxes and reward work”.
One of the measures he talked about concerned changes to National Insurance, which we discuss below in more detail. We explore what the Statement said, how this will affect employees, and essential takeaways not to be overlooked. Finally, we briefly examine other changes that could affect employees in 2024.
Payroll Changes Concerning National Insurance
Under the Statement’s payroll changes, a National Insurance cut will be applied to the main rates for employees. This comes as part of the Government’s goal to continue growing the economy and will be implemented starting 6 January 2024.
Chancellor Hunt added that following these changes, UK employees will have the lowest personal taxes compared to every other G7 country. Those include Canada, France, Germany, Italy, Japan and the US. Furthermore, this change contributes to a tax cut made by the Government for 29 million people, worth £9 billion annually.
Following these payroll changes, the main National Insurance rate for employees will be reduced by 2%, from 12% to 10%. Chancellor Hunt stated that employees with an average salary of £35,400 would see a tax cut worth £450 annually.
Additionally, the Government provided examples of the savings to be expected from individuals on different salaries. For example, a cleaner who works night shifts, earning £21,000 annually, would see a gain of £170. Whereas a ‘typical’ junior doctor earning £63,000 a year would receive a gain of over £750 annually.
Furthermore, this tax deduction means the combined basic tax rate for employees, comprising income tax and National Insurance, will reduce from 32% to 30%. As a result, the combined rate will be at its lowest for decades.
Payroll Update Drawbacks
Despite the Government claiming these payroll changes will benefit employees by reducing taxes, they could be detrimental in other areas. Mainly the salary sacrifice benefit, where employers and employees should keep the changes in mind.
With the payroll update reducing the National Insurance rate to 10%, equivalent losses will be seen with the salary sacrifice benefit. This means the cost of a £100 pension sacrifice for a basic rate taxpayer will rise by 2.9% from £68 to £70. Moreover, an NI-specific benefit like medical will cost 2.3% more, from £88 to £90.
Are There any Other Payroll Changes?
In addition to the National Insurance cut, other payroll changes were announced. One of these changes will increase the national living wage by 9.8%. As such, the minimum wage will increase from £10.42 to £11.44 per hour in April 2024.
However, that’s not the only change, as Chancellor Hunt added the improved minimum wage bracket would be opened to those 21 and older. Previously, this wage was only available to those 23 and older.
Holiday pay and Entitlement
What’s more, the Government published the draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (ER Regulations) on 8 November 2023. These regulations will change how holiday pay is calculated and have amended some legislation, including the Working Time Regulations 1998 (WTR).
The ER Regulations will take effect from 1 January 2024 and apply to holiday years from 1 April 2024. Among other things, these changes will include:
- Enabling employers to calculate holiday entitlement for those on irregular hours using a more concise accrual method. This involves calculating 12.07% of the hours worked in a given pay period.
- Allowing rolled-up payments for irregular hours, which will be calculated on one’s total earnings in a given pay period.
- Revoking legislation brought in during Covid, which allowed some holidays to be rolled over for two holiday years.
Also, the ER Regulations will reduce the administrative burden of the WTR on employers by simplifying the record-keeping requirements. Although adequate records will still be required, employers won’t be obligated to track workers’ daily working hours.
With several payroll changes on the cards for 2024, it’s essential to stay alert and understand what’s coming. Employers will need to ensure they’re deducting the correct amount of tax and not breaching the new national living wage. Conversely, employees must check their payslips and ensure they receive what they’re entitled to.
If you have any questions about the changes for 2024, contact us today. Redmans Solicitors are experts in all areas of employment law and could provide you with the support you need.