The Chancellor’s Autumn Statement on 23rd November decreased employee’s National Insurance from 12% to 10%. This will come into effect from the 06th January 2024. This is undeniably a benefit to employees, but before we get excited about additional take home pay for our team, lets break down exactly what this means in real terms.
National insurance is calculated based on either weekly or monthly earnings, and on the earnings in that period pay only. It isn’t impacted by earnings from earlier in the financial year, as PAYE tax can be.
National insurance is not deducted from every pound an employee earns. To see an NI deduction on an employee’s payslip, their gross earnings must be above the Primary Threshold (PT). In 2023-24 this is either £242.00 per week or £1,048.00 per month.
Earnings above £967.00 per week or £4,189.00 per month are within the Upper Earnings Limited (UEL) and are subject to NI at a lesser rate of 2%.
So let’s get into the numbers, and how much this benefits an employee in reality.
Anna, who manages a café, works an average of 180 hours per month at £11.00 per hour. Her gross for pay for December 2023 will be £1,980.00. Her national insurance deduction in December will be £111.84. This is calculated as shown below:
£1,980.00 – £1,047.99 (LEL) = £932.01 x 12% = £111.84
She sees that the first £1,047.99 of her earnings are not subject to NI, but the remaining £932.01 are, at 12%, creating NI deduction of £111.84.
Taking into account tax of £186.40, and a pension contribution of £73.00 (5% without tax relief) her take home pay is £1,608.76.
If you are interested in how to calculate tax for your employees, you’ll find my blog really helpful:
In January, Anna’s NI calculation will change:
£1,980.00 – £1,047.99 (LEL) = £932.01 x 10% = £93.20
The amount of her earnings subject to NI remain at £932.01, but the reduction to 10% reduces her NI from £111.84 to £93.20. Her take home pay increases by £18.64 per month or £223.68 per year.
As Anna is 22, from 06th April 2024 she will benefit from the new National Living Wage.
In 2023-24, a 22 year old was entitled to National Minimum Wage (NMW) of £10.18. From 01st April 2024, 21 and 22 year olds will be entitled to the new National Living Wage of £11.44 per hour, an increase of £1.26 per hour.
So lets review Anna’s pay again, with the new National Living Wage from April 2024.
An average of 180 hour per month at £11.44 per hour brings her gross up to £2,059.20. Running this increase through the NI calculation, her NI deduction looks like this:
£2,059.20 – £1,047.99 (LEL) = £1,011.21 x 10% = £101.12
To get an idea of Anna’s take home pay, we do need to take her PAYE tax and pension contributions into account too.
Tax: £2,059.20 – £1,047.50 (taxable allowance) = £1,011.70 x 20% = £202.34
Pension: £2,059.20 – £520.00 (non-pensionable pay) = £1,539.20 x 5% (no tax relief) = £76.96
Monthly gross salary: £2,059.20
less
PAYE tax £202.34
NI at 10% £101.12
Pension contributions £76.96
Take home pay £1,678.78
The decrease in NI percentage, and the increase in National Living Wage means Anna has an additional £70.02 per month in her pocket.
The government have published their Policy Paper on the Autumn Statement, which can be found here for a comprehensive read:
https://www.gov.uk/government/publications/autumn-statement-2023/autumn-statement-2023-html
Information on tax and NI thresholds for the UK for the 2023-24 tax year can be found here. These should be updated with the changes in NI threshold shortly
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2023-to-2024#national-minimum-wage
Many employees will have questions about the benefit they should see due to the increase in National Minimum and Living Wage, and hopefully this helps you answer their questions.
But if you’re an employer who is struggling with payroll, and it’s causing you a headache each month, why not call the office to discover if we can help. Payroll outsourcing is more affordable than you’d imagine and amongst other things, we guarantee a headache-free month end.
Call Nadine in the office on 01384 92 90 20. I look forward to speaking to you.
