Budget 2025: What HR needs to know
Budget 2025: What HR Leaders Need to Know
The Chancellor’s 2025 Budget introduces significant changes that will impact employers, HR teams, and employees across the UK. From reforms to pension salary-sacrifice to another rise in the National Living Wage, these updates will affect pay structures, benefits planning, and long-term workforce strategies. Below is a summary of the key points your organisation needs to know.
Changes to pension salary-sacrifice
The government has introduced a £2,000 cap on the amount employees can pay into pensions tax-free through salary sacrifice.
From April 2029, any pension contributions above that threshold will attract National Insurance contributions (NICs): 8% for basic-rate taxpayers, 2% for higher-rate; employers will pay 15%.
The move is expected to raise substantial revenue (an estimated £4.7 bn in 2029–30) and reflects a government view that the existing salary sacrifice system disproportionately benefits higher earners.
Minimum wage and living wage increases
From April 2026, the National Living Wage (21+) rises to £12.71/hour.
For 18–20-year-olds, the rate increases to £10.85/hour; for 16–17-year-olds and apprentices to £8.00/hour.
A real-terms pay rise that offers relief to low-paid workers, aiming to improve financial security for younger or lower-paid employees.
What this means for Employers & HR Teams
Payroll & benefits planning: With salary-sacrifice pension arrangements changing, HR/payroll teams need to review existing pension schemes and communicate adjustments to affected employees well ahead of 2029.
Cost pressures: The changes may increase employer NIC liabilities on pension contributions above the cap - something employers should model in long-term benefits budgeting.
Wage pressure: The rise in minimum / living wage may drive increased wage bills for staff, and might also raise expectations for pay reviews or adjustments across the workforce.
Communication with employees: Organisations should be transparent about how these changes impact take-home pay, pensions, and overall remuneration packages — particularly for staff on salary sacrifice or lower income brackets.
Broader HR / Business Implications
According to the professional HR body CIPD, while the Budget increases employment costs for business, it “fails to provide a clear plan … to boost productivity and jobs growth.”
CIPD. This raises concerns for employers that rising costs (wages + pension/NI changes) may squeeze margins — especially without offsetting measures to support growth or skills investment.
For HR leaders, this may reinforce the need to focus on skills development, workforce planning, and retention strategies, rather than just pay and benefits.
What HR Teams Should Do Now
Audit current salary-sacrifice pension schemes and identify employees likely to be affected under the new cap.
Update payroll and benefits systems to reflect NIC changes coming in 2029 — and budget accordingly.
Communicate clearly with affected employees about expected changes to take-home pay/pension contributions.
Review broader compensation strategy in light of increased minimum wage — consider whether adjustments across pay bands are needed to maintain fairness and morale.
Reassess HR priorities: as employment costs rise, consider investing in training, retention, and productivity, not just compensation.
The 2025 Budget brings important changes for UK employers, especially around pensions and wages. While the reforms aim to rebalance tax-advantaged pension schemes and support low-income workers with higher wages, they also bring new cost and compliance implications for businesses. For HR leaders, now is the time to review schemes, update systems and communication, and ensure long-term workforce strategy isn’t overshadowed by short-term payroll changes.
Read full article here: https://www.peoplemanagement.co.uk/article/1941117/budget-2025-hr-needs-know?bulletin=pm-daily&utm_source=mc&utm_medium=email&utm_content=20251126_PM+Daily_NWL_CIPD_GLO_MIX_MAN_NA.https%3a%2f%2fwww.peoplemanagement.co.uk%2farticle%2f1941117%2fbudget-2025-hr-needs-know%3fbulletin%3dpm-daily&utm_campaign=&utm_term=8323099.003240000149ZxOAAU.83230995
(Article source– People management)