WFM UK: 2024 - 2025 Legislation Updates

Overview

This article gives an overview of the changes that HMRC plans to introduce following the Autumn Statement in November 2023, and how Fourth will incorporate them into its HR and Payroll solution.

The exact legislative requirements have not yet been confirmed by HMRC. The information below is based on draft guidance already published by HMRC concerning the proposed changes. Some changes are also only in a consultation stage and have not yet been officially confirmed. More information will be added as and when it is received.

The full policy paper from the Autumn Statement 2023 can be found here.

 Please Note: The spring budget has been announced to take place on 6th March 2024. Any changes relevant to the 2024/2025 tax year will be outlined in a future article.

Employee National Insurance Rate Decrease

It was announced that from 6th January 2024, earlier than normal, Primary Class 1 National Insurance (paid by employees) is to be reduced by 2%, excluding deferment-related National Insurance categories (J, L and Z).

Those using the annual calculation method to calculate Directors National Insurance will find an annualised percentage of 11.5% will be used to account for the nine months at 12% and 3 months at 10%.

Full details can be found in this article published in November 2023.

National Living Wage Increase

From 1st April 2024, the National Living and Minimum Wage will receive its largest ever increase, as well as the age banding for the Living Wage being taken from 23 years of age to 21. The details of the increases are detailed in the table below:

Holiday Changes for Irregular Hour and Part-Year workers

Back in May 2023, it was announced that the Government was looking to make reforms to currently retained EU legislation post-Brexit, including changes to the holiday accrual and pay legislation for casual, part-time or irregular workers and introducing rolled-up holiday pay. Whilst it is not yet understood what the effective date will be, preparations will be made for a 2024 introduction.

'Irregular Hour' and 'Part-Year' workers have been defined within The Employment Rights (Amendment, Revocation, and Transitional Provision) Regulations 2023.

More information on irregular-hour and part-year workers can be found here in this article

Holiday Entitlement:

For each pay period, part-year or irregular workers will be entitled to accrue holiday at a rate of 12.07% of hours worked in that period. For example, if an employee works 12 hours in a pay period they will accrue 1 hour of holiday (noting that rounding rules apply whereby if less than 30 minutes then round down, or if above 30 minutes round up).

During periods of sick or statutory leave, these employees will still accrue holiday using a 'relevant period'. The relevant period is calculated by taking the total hours worked in the last 52 weeks divided by the number of weeks the hours are totalled from. This includes periods of no remuneration but excludes periods of sick or statutory leave to which the calculation can go as far back as 104 weeks (maximum). If a total of 52 weeks cannot be used then the total number of weeks available will be used.

Rolled-up Holiday Pay:

Rolled-up holiday pay is defined as a practice whereby the employer pays their employees an additional amount on top of their normal hourly rate of pay, with the additional amount intended to represent their holiday pay, instead of them taking the time off at the time they receive the payment.

If employers choose to use rolled-up holiday pay, they will be required to calculate a worker's holiday pay as 12.07% of the worker's total earnings within the pay period.

Holiday Pay:

The rate at which holiday should be paid for Irregular Hour and Part-Year workers is determined according to the following formula

A ÷ B

• A - the week's pay
• B - the average number of hours worked by the worker in each week used in the calculation of A

If not already included, certain payments should be included in the calculation of this rate on top of an existing hourly rate, such as:

• Payments which are linked to the performance of tasks (commission, for example)
• Payments for professional or personal status relating to length of service, seniority or professional qualifications
• Other payments, such as overtime, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.

Investment Zones

Full details on Investment Zones beyond Payroll-related legislation can be found here.

Comparable to Freeports and the National Insurance relief received, the Government is introducing 'Investment Zones' from April 2024 (noting that if Investment Zones do go ahead before April 2024 then companies will be able to apply Freeport NI categories until the Investment Zones are introduced).

With the use of four new National Insurance categories, employers will not have to pay National Insurance on earnings over the Secondary Threshold (ST) of £9100* per year but instead on earnings over the Investment Zone Upper Secondary Threshold (IZUST) of £25,000* per year for employees with the new categories applied. The categories are:

• N - (standard category letter)
• E - (married women and widows entitled to pay reduced NICs)
• K - (employees over the state pension age)
• D - (employees who can defer paying 12% NICs and pay only 2% because they are already paying it in another job).

*Thresholds based on the 2023/2024 tax year, which mimic the Freeport thresholds

Statutory Paternity Leave Enhancements

From 6th April 2024, the way that Statutory Paternity Leave and Pay is requested and processed will be different. The Payroll module will be updated to reflect these changes and remain compliant. 

Technically this is effective for baby-born dates from 7th April 2024 onwards, because 6th April 2024 is a Saturday (Expected Week of Childbirth always runs Sunday to Saturday) and Statutory Parental Leave begins from Sundays. Adoption placement dates can commence and use these new rules from 6th April 2024 however, as these can be any day.

• Fathers, or partners, will be able to take their two blocks of one week (or continue to just take two weeks in one block) of paternity leave at any time during the 52 weeks from the child's birth (or placement for adoption). 28 days notice must still be given before the wished start dates and applies to when they request each block of leave they wish to take.
  • Previously: Fathers, or partners, had to take their paternity leave as one block of two weeks, or just one week
  • Previously: Paternity leave had to be taken within 56 days of the child's birth, and not before the birth

National Insurance Relief Extensions

In April 2022, both Freeport and Veteran National Insurance relief were introduced and detailed in this release note. Originally the Freeport National Insurance had an end date of March 2026 but has been extended to end in March 2031. Veterans National Insurance relief was expected to end at the end of the 2023/2024 tax year but has been extended for one more year meaning it is still available in the 2024/2025 tax year.