Global Payroll Alliance

26 Nov 2025

Analysis by Lee McIntyre-Hamilton

If today’s budget were a West End play, it would likely leave many employers wishing they had never bought a ticket.

In the real world, whether they have seen it or not, no employer will be left unscathed by the budget’s key impact - further increases in employment costs and, perhaps worse, with no signs of any let-up.

The Warm-Up

Before the Chancellor had even stood up at the despatch box today, leaks aside, employers had already been dealt their first blow – a further increase of 4.1% in the National Minimum Wage.

Whilst any reasonable person should welcome additional help for the low-paid, many employers will see it as short-sighted and counterproductive. Why?

To balance the books, a swathe of employers will inevitably seek to reduce wage costs by curbing pay rises, defeating the objective. In addition, some employers will decide to curtail recruitment or, worse still, reduce headcount.

The impact of previous tax raids on employers (including increases to corporate tax, freezing NIC thresholds, and employer NIC increases) is already contributing to increased unemployment.

With an even greater rise of 8.5% for workers aged between 18 and 20, young people may find that employers simply aren’t willing to invest in their labour. Employers will wonder whether the Chancellor has thought about the substantial investment in time and resources that are often needed to train inexperienced employees.

The Main Act

If employers had hoped that the warm-up act would be the total of additional employment costs, they would be sorely disappointed.

Frozen thresholds

PAYE and NIC thresholds will remain frozen until April 5, 2031, almost a decade since they were frozen.

What this means for employers is that, as wage inflation pressures persist over the coming years and wages inevitably rise, the amount of employer NIC that they will pay will continue to increase year on year.

Pension salary sacrifice

The Chancellor has placed a £2,000 cap on the amounts of gross employment income that can be paid tax-efficiently into a UK pension under a salary sacrifice arrangement. This will apply from 2029. In effect, this removes the opportunity for employers to save employers' NIC on employer pension contributions made under a salary sacrifice arrangement. For many employers with such arrangements, the cost impact of this is likely to be substantial. This measure will also affect employees who will also lose their employee NIC saving.

Tax and NIC rates remain unchanged

Whilst it is a small consolation in the context of the employment cost increases above, employers will be relieved to learn that there will be no increases to the rate of tax and NIC, meaning that the rate of employer NIC - a direct cost to employers - will remain at 15%.

Class 2 NIC

The Chancellor removed the opportunity for employees to make Class 2 NIC contributions (at £3.50 per week) when they are living and working overseas. Class 2 contributions enable employees overseas to maintain their contribution years to the UK state pension, as well as providing other benefits.

Whilst this measure does not directly affect employers, employers are likely to want to alert any affected employees overseas.

The Finale?

Employers will no doubt be hoping that the budget is finally the end of employment cost increases. However, this is far from certain.

Many will wonder whether the Chancellor’s £21.7 million of fiscal headroom will be enough or whether she will be forced to come back again for more. The effects are serious for employers, especially small employers and those of all sizes, which are struggling to maintain profitability.

Key measures for employers

National Minimum Wage: From April, workers over 21 will see a 4.1% increase to their minimum wage, bringing it up to £12.71 an hour. Those aged 18 to 20 will receive an increase of 8.5% and those aged 16 to 17 will receive an increase of 6%.

Tax and NIC thresholds: Thresholds will be frozen until the end of the 2030/31 financial year

Pension salary sacrifice: £2,000 cap on the amounts of gross employment income that can be paid into a UK pension under a salary sacrifice arrangement.

Tax and NIC rates: Tax and NIC rates will remain at the current levels.

Class 2 NIC: Opportunity to make Class 2 NIC contributions abolished for employees living and working overseas.

Responding to news of the pension salary sacrifice cap, Matt Russell - CEO at Epassi UK and Zest - said, “Capping pension salary sacrifice will ring alarm bells across the country. It will not only hit the long-term financial health of employees but also impacts businesses who use salary sacrifice as a cost-effective tool to reward staff and boost talent attraction, retention, and productivity. These employers will need to find other approaches to support employees or risk losing a competitive edge, which will ultimately impact UK growth.”

Author: Lee McIntyre-Hamilton

Lee has over 25 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations. Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.

Contact Lee: lee@gpa.net