Elizabeth Judson, head of platform experience at AfterAthena, examines the implications for employers and employees arising from the Budget

Increases in National Minimum Wage and National Living Wage:

Continuing the Government's commitment to fair pay and reducing in-work poverty, from April 2026 over 21s will receive 50p more per hour, increasing by 4.1 per cent to £12.71, while workers aged 18-20 will enjoy an 8.5 per cent rise to receive 85p more per hour. Those workers under 18 and apprentices will get an additional 45p more per hour to £8, an increase of 6 per cent.

Implications for employers: 

Elizabeth said: “The pay budgets of employers will have to absorb the higher base hourly rates, with consequent effects including holiday pay, overtime rates and pension contribution calculations.

“To avoid wage compression, employers may need to revisit structures of pay bands. The effect of the increases will be felt most by those employers in labour-intensive sectors such as retail and hospitality.

Support and opportunity for young people:

Chancellor Rachel Reeves revealed funding to make training for under-25s apprenticeships free to small and medium-sized businesses - with £820m invested in the new youth guarantee over the next three years to provide young people with support and opportunity.

This guarantee ensures every young person has a place in college, an apprenticeship or job support. Following 18 months without having 'earned or learned', 18–21-year-olds will be offered guaranteed paid work.

Implications for employers:

Elizabeth said: “Employers should prepare to use training grants and funding and related benefits, map skills gaps and ensure their training and recruitment strategies align with Government policy.”

Pensions salary sacrifice:

Changes to pension salary sacrifice arrangements will take effect from April 2029, giving employers and staff time to adjust. The changes see salary sacrifice pension contributions above the annual threshold of £2,000 taxed in the same way as other employee pension contributions.

Implications for employers:

Elizabeth said: “Employers offering pension salary sacrifice schemes need to take steps now to prepare for the change in 2029 - because the change will financially impact many staff, communication with them is important.”

Employer National Insurance and Payroll Tax Burden

No further changes were announced despite National Insurance Contributions (NICs) being considered for a review e.g. potentially raising employer NICs or lowering the threshold at which employer NICs apply or both.

Implications for employers:

Elizabeth said: “Employers who have had to reduce workforce expansion, reduce headcount and increase prices because of the rise in employer NICs since April 2025, will be relieved that no further changes were announced.”

Elizabeth also outlined wider strategic actions to be considered by employers following the Budget:

Scenario modelling and cost-stress testing - employers should build-in scenarios to plan for the impact of higher wage costs, particularly those in labour-intensive sectors including hospitality, care and retail

Review pay structures and internal equity - as minimum pay increases, mid and higher-level pay bands must be reviewed to ensure they remain motivating and differentiated

Workforce design and productivity focus - as cost pressures increase in some sectors, employers need to stress how roles, hours and staffing models are linked to productivity e.g. flexible working, automation, multi-skilling and role redesign all become more important

HR and payroll system preparedness - employers must ensure that payroll, HR information systems and contractual documentation are up to date and can adapt to changes in minimum wages and pension salary sacrifice

Employee communication and engagement - staff retention and morale will be helped by clear communication to staff about issues including cost pressures and changes to minimum wages and pension salary sacrifice

Grants and funding - employers should exploit training and employment schemes for young people.