Increase to Employment Allowance & the new National Living Wage

The National Living Wage and Employment Allowance; now that the dust has settled on the second budget of the year, we take a look at changes which will come into force very soon for employers.

Since April 2014, the Employment Allowance has been available for most employers to reduce their National Insurance liability by £2,000 per year. This allowance will continue to be available for the 2016/17 tax year at the higher rate of £3,000 per year.

The increase in Employment Allowance will help to compensate for the new, compulsory, National Living Wage.  From April 2016 businesses will have to pay workers aged over 25 at least £7.20 per hour, which then rises to £9 per hour by 2020. The changes in 2016/17 will mean that employers will not incur any employers National Insurance contributions for the entire year on the first 3 full time workers aged over 25, earning the National Living Wage.

However, for companies where the director is the sole employee on the PAYE scheme and their salary is above the Lower Earnings Limit, the allowance will no longer be available. If you have any query on this, or any other payroll queries, then please do not hesitate to contact us.