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This year, the UK has introduced several significant adjustments that will impact your payroll processes. Jon Lee, Payroll Manager, discusses the key changes that will affect you and your business.
1. Changes in National Insurance (NI) Rates
One of the fundamental aspects of payroll management is keeping up with changes in NI rates. In 2024, the UK government has introduced new NI rate adjustments, affecting both employers and employees:
a. Decrease in Contributions for Class 1:
From 6 January 2024, the main Employee National Insurance (NI) rate was cut by two percentage points. So, for an employee in the default NI category, Class 1 National Insurance Contributions (NIC) are being reduced from 12% to 10%. This means that after tax, employees will be on average £450 better off per year (based on an average earing of £35,400 annually).
b. Self-Employed Class 2 NI:
Self-employed people with profits above £12,570 will no longer be required to pay Class 2 national insurance contributions from 6 April 2024. This change effectively abolishes Class 2 national insurance contributions for two million self-employed people.
c. Self-Employed Class 4 NI:
The Chancellor has also announced that Class 4 national insurance contributions, on all earnings between £12,570 and £50,270 will be cut by 1%, from 9% to 8% from April 2024. This is worth £350 for the average self-employed person on £28,200.
It is essential for employers to update their payroll systems and ensure accurate deductions. Failure to do so may lead to compliance issues and potential penalties.
2. Holiday Pay and Entitlement
2024 brings notable changes in holiday pay and entitlement, designed to enhance the rights and compensation of employees:
a. Calculation of Holiday Pay:
To ensure a more accurate calculation of holiday pay for workers with irregular working hours, holiday will accrue based on 12.07% of the hours worked by the individual in the previous pay period
b. Accrual of Holiday Entitlement:
In 2024, employers (if they wish to use it) can implement rolled-up holiday pay. This means that holiday pay for these workers can be paid as an uplift of 12.07% to the normal rate of pay at the time work is done, instead of being paid at the time holiday is taken.
c. Right to Request Flexible Working:
Although not directly impacting payroll processing, it’s important to note that employees now have the right to request flexible working arrangements. Employers must consider such requests fairly and provide valid reasons for any refusals. This change may influence working hours and subsequently affect holiday pay calculations.
3. National Minimum Wage (NMW) and National Living Wage (NLW)
The NMW and NLW rates are subject to annual adjustments, with 2024 being no exception. These rates dictate the minimum hourly wage that employers must pay their employees:
a. National Minimum Wage (NMW) Rates:
– Workers aged 16-17: The NMW rate will increase to £6.40 per hour.
– Workers aged 18-20: The NMW rate will rise to £8.60 per hour.
– Workers aged 21 and over: The NMW rate will increase to £11.44 per hour.
– Apprentices aged under 19 or in their first year: The NMW rate will be £6.40 per hour.
b. National Living Wage (NLW) Rate:
The NLW, applicable to workers aged 25 and over, will increase to £11.44 per hour.
Employers must ensure that their employees’ wages meet or exceed these minimum rates. Failing to do so can result in penalties and legal repercussions. Furthermore, payroll systems should be updated to reflect these new rates to avoid underpayment of wages.
4. Statutory Paternity Leave Changes – Effective 6 April 2024
Following consultation in 2019, starting from 6 April 2024, there will be some changes to Statutory Paternity Leave (SPL) in the UK:
a. Paid Paternity Leave:
Eligible employees will now be able to take PPL in two non-consecutive periods of 1 week or a 2-week block within 52 weeks of the birth of the child or placement for adoption.
b. Notice Period:
The notice period for requesting SPL has been reduced to 28 days before the intended start date, offering more flexibility and accommodating last-minute changes.
5. Student Loan Thresholds Announced – Effective 6 April 2024
Starting from 6 April 2024, new Student Loan thresholds will be in effect. These thresholds determine when employees are required to start repaying their student loans. The changes are as follows:
a. Plan 1 Student Loans:
– The threshold for Plan 1 Student Loans will increase to £24,990 per year.
b. Plan 2 Student Loans:
– For Plan 2 Student Loans, the threshold will remain frozen at £27,1295 per year as expected.
6. Payrolling of benefits to be mandated by 2026
HMRC has recently made a significant announcement that will reshape the landscape of payroll management. From April 2026 onwards, reporting and paying income tax and Class 1A National Insurance Contributions (NIC) on benefits-in-kind (BIK) will become mandatory through payroll software. This move is set to revolutionise the way employers handle employee benefits, simplifying the process and reducing the administrative burden. For more information on this, read my latest article on this.
It is crucial for employers to adjust their payroll systems to reflect these new Student Loan thresholds accurately, as incorrect deductions can lead to financial discrepancies for employees.
Employers must review and update their payroll processes and seek professional guidance when necessary to navigate these changes effectively. To see how Scrutton Bland can help take away the Payroll burden contact Jon Lee by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk
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