Upcoming changes to National Minimum Wage, Holiday Pay and IR35 – How will they affect you?

As we near the new tax year on the 6th of April, legislative changes will impact both earnings and government contributions. In this article, we discuss what changes are coming up in April 2024 and how they might affect both contractors and end-hirers.


Annual increase of National Minimum Wage and National Living Wage

The National Minimum Wage is the current minimum pay per hour for workers under the age of 23. For those over 23, the slightly higher National Living Wage applies.

From 1st April 2024, the National Living Wage will apply to any UK workers over 21. This is the first change of age limit since it was reduced from 25 to 23 in 2021. In addition, both the National Minimum Wage and National Living Wage will go up as part of the yearly increase.

The government announced the upcoming changes in the Autumn 2023 budget following guidance from the Low Pay Commission and to meet the government’s target of two-thirds of median hourly pay for those over 21 by 2024.

There are three tiers of NMW, with an Apprentice Rate (increasing to £6.40), 16-17 Year Old Rate (increasing to £6.40), and 18-20 Year Old Rate (increasing to £8.60). The National Living Wage which will apply to workers aged 21 and over is increasing to £11.44.

While increases to NMW and NLW are largely welcomed, as the Cost of Living crisis continues to place high levels of pressure on individuals and families, some employers might struggle to absorb the costs.

“This hasn’t been easy for employers, with the economy facing a range of unprecedented challenges in recent years,” said Bryan Sanderson, LPC Chair in November 2023.

However, failing to pay the NMW and NLW can have serious consequences, with potential fines of up to £20,000 per worker and back pay in arrears, as well as being named and shamed on the gov.uk website. HMRC can and do carry out minimum wage compliance checks to ensure that workers are paid fairly.

The NLW and NMW increases every year, so it pays for employers to consider long-term strategies to mitigate the changes when they come about. Improvements to efficiency, a reduction of overheads, and the avoidance of debt should always be the main goals. If you are in any doubt, there is advice and support available to business owners through the government as well as membership organisations such as the Federation of Small Businesses (FSB). And of course, do reach out to us here at MyPeople, we are always looking for ways to help.


Working Time Regulations changes ensures a fairer deal for umbrella workers

Following numerous holiday pay scandals over recent years, the government has finally taken action to ensure that umbrella workers get the holiday pay they are owed, by adding Advanced Holiday Pay as a method to calculate holiday pay for irregular-hours workers and part-year workers.

Non-compliant umbrella companies often fail to inform contractors of their holiday pay entitlements and profit from accruing the unpaid holiday pay. And with many flexible workers not taking annual leave during or between assignments, contractors would often leave or finish assignments without getting the pay they deserved.

To mitigate this and protect their workers, many umbrella companies pay Advanced Holiday Pay (also known as rolled-up holiday pay or accrual method) which calculates and pays holiday pay on top of their assignment fee, at a rate of 12.07% of their hours worked in the given pay period. However, until now, this method was not formalised in legislation.

The change comes after the government’s much awaited consultation into umbrella workers, with the response stating, “Allowing holiday pay to be paid as an enhancement to a worker’s pay at the time that the worker performed work, instead of when they are on holiday, would ensure that the worker’s holiday pay was as closely aligned to the pay that they would have received as possible.”

While there are several other ways of calculating and paying holiday pay, this particular method ensures that all contractors are guaranteed to get their entitlement.

MyPeople have always paid Advanced Holiday Pay to ensure that our contractors get a fair deal.


IR35 off-payroll rules changing to prevent double taxation

Currently, if HMRC deems that a contractor has been wrongly placed outside IR35 by an end user business it can in theory collect tax from both the contractor and the end hirer.

  • Following an assignment, the contractor is paid their fee and pays their taxes lawfully as part of their own tax declaration.
  • If HMRC opens an investigation and finds that the contractor should have been inside IR35 they will issue a tax bill for missing PAYE tax. If the end client engages a recruitment agency or umbrella company, the agency or umbrella is the fee payer and will be liable for the unpaid tax.
  • This means that HMRC collects too much tax, as the contractor has already paid tax on that fee, with the end-client also deducting Income Tax and Employee NICs from the fee and paying Employer NICs and the Apprenticeship Levy where relevant.

To avoid the risk of double taxation and the associated cost of IR35, many companies have issued a blanket ban on roles outside IR35.

However, changes that are due to come into force on 6th April 2024, will mitigate the risk of double taxation by calculating the tax already paid by a contractor and their intermediary against the PAYE liability.

HMRC themselves point out that calculating this will be complicated as tax liability will be unique to each worker depending on several factors. Therefore, they will “use assumptions and best judgement to estimate the amount of tax paid by a worker and their intermediary that represents tax paid on off-payroll working income.”

HMRC will consider payments already made for:

  • Corporation tax – paid by the contractor’s agency or umbrella
  • Income tax and Employee NICs – paid on behalf of the contractor by their agency or umbrella
  • Class 2 and Class 4 NICs
  • Tax on dividend payments

Removing the risk of double taxation will hopefully encourage more businesses to lessen their restrictions on working with contractors, with experts suggesting that two-thirds of all contract roles will be outside IR35 by the end of 2024.

MyPeople aims to keep our clients, agency partners, and employees informed of any changes that might affect them. As always, if you have any queries at all, please do get in touch.