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The Budget: employment law implications

Chancellor George Osborne has delivered his first majority Conservative Government budget. We have summarised the key employment points arising from it.

National Living Wage

The Conservatives in the lead-up to the election said that they supported increases to National Minimum Wage. In the budget they went further than this by introducing a National Living Wage.

This will involve a premium payment for workers over the age of 25. The first premium will be set in April 2016 at 50p which will increase the National Minimum Wage for over 25s to £7.20.

The Low Pay Commission has been asked to make recommendations for National Minimum Wage increases in 2016 and 2017 and National Living Wage going forward in order to prepare businesses for the increases. It is thought that the National Living Wage will increase to £9 by 2020.

To help businesses with the increasing wages, the Employment Allowance is set to rise from £2,000 to £3,000 which cuts the National Insurance businesses and charities pay.

Termination Payments

The Government plans to consult on simplifying the tax and NIC treatment for making termination payments. A consultation will take place in Summer 2015.

Salary Sacrifice Schemes

The Government has noted that these schemes have become very popular, resulting in increased costs to the tax payer. The Government will monitor this.

IR35 Review

HMRC will consult on reforms for IR35 legislation. Personal service companies are criticised as being seen as vehicles to avoid tax through disguised employment. The consultation will be released shortly.

Sunday Trading

The Government has committed to consult on devolving powers to local authorities and city mayors to decide on hours of Sunday trading (within stipulated parameters). This will clearly be something that retailers will be keeping a close eye on and is likely to have employment law implications.


The Conservatives have always expressed their commitment to delivering more apprenticeships in the UK, 3 million more to be precise.

The budget has announced that funding for these apprenticeships will be put in the hands of the employers.

A levy will be introduced on large UK employers to support all post 16 apprenticeships. The funding provided will ensure that each employer can meet their individual needs.


The National Living Wage has divided opinion. Trade Unions and business leaders are happy with some elements of the budget but not others and not surprisingly they don’t like the same things.

The GMB union leader, Paul Kenny welcomed the National Living Wage but condemned the Government for “taking away money from working families without any guarantee that they will be better off.” At the same time as the introduction of the National Living Wage, the Government has also announced reductions in tax credits and many commentators predict that lower to middle income families will be less well off due to these reductions, despite the introduction of the National Living Wage.

The Government hopes that by introducing what many consider as a high minimum wage that this will mean that employers will introduce pay increases across all grades of staff, but there is of course no guarantee of this and it places a big emphasis on employers. Some commentators have pointed out that while the Government has challenged employers in the private sector to increase wages, George Osborne in the budget placed a fixed pay increase of 1% on public sector workers for the next four years.

CBI director general John Cridland commented that “This is a double-edged budget for business. Firms will welcome measures to balance the books and boost investment, but they will be concerned by legislating for wage increases they may not be able to deliver… This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6%.”

Overall opinion is mixed as there are both positives and negatives for employees as well as employers.

The National Living Wage will likely have the biggest impact on employers by creating a new bracket for the over 25’s. The Office for Budget Responsibility believes it will cause businesses to recruit more employees under the age of 25 to avoid the increased layer of pay.

How can Ward Hadaway help?

For further details on the employment implications of the budget, please get in touch.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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