As a new tax year edges ever closer, employers will be taking this opportunity to review their workers' pay. Unfortunately, COVID-19 continues to make this task much more difficult than usual.

With inflation, as measured by the Consumer Prices Index (CPI), tipped to soar yet further this year, employers will be keen to reward their employees' hard work following another tough year.

Some will have their hands forced by the national living wage, which climbs to £9.50 an hour for over-23s. For a full-time employee working a standard 37-hour week, that equates to more than £18,000 a year.

Changes to National Insurance contributions (NICs), for both employers and employees, will also be commencing for the 2022/23 tax year to develop the health-and-social-care levy, which kicks in from 2023/24.

Arguably the biggest issue for employees right now is the unusually high rate of inflation, which is driving up the costs of goods and services, and eating into salaries at the same time.

So, while employers that pay the minimum wage will have their hands forced, other employers - especially those that are having a profitable 2021/22 - might want to help out their members of staff.

National living wage

The Treasury is implementing recommendations from the Low-Pay Commission to raise the minimum wage rates for under-23s by 6.6% for 2022/23.

From 1 April 2022, employers will have to pay at least the following hourly rates to workers in these age groups:

  • over-23s - £9.50 (up from £8.91)
  • 21 to 22-year-olds - £9.18 (up from £8.36)
  • 18 to 20-year-olds - £6.83 (up from £6.56)
  • 16 to 17-year-olds - £4.81 (up from £4.62)
  • apprentices - £4.81 (up from £4.30).

Living wages increases are usually linked to the CPI's rate of inflation for the previous September, which was 3.1%.

The 6.6% increase is more than double the September rate, meaning employers have to pay low-paid workers around £1,000 more in 2022/23.

Workplace pension contributions

Private-sector employers in the UK have to automatically-enrol eligible employees into the business's defined-contribution workplace pension scheme. The criteria remains unchanged for the 2022/23 tax year.

Employees who earn more than £10,000 a year and are aged between 22 and state pension age must be automatically enrolled.

Employers must pay at least 3% of the employee's qualifying earnings into their workplace pension, while deducting at least 5% from their gross pay cheque and paying that into the scheme on their behalf.

The combined minimum contribution is 8% of an employee's monthly gross salary.

National Insurance contributions

The following annual NICs thresholds remain unchanged from April 2022. These are:

  • class 1 (employees) - £9,568
  • class 1 (employers) - £8,840
  • upper-earnings limit - £50,270.

The lower-earnings limit for 2022/23 will increase by 3.1% in line with the CPI's rate of inflation for September 2021 - from £6,240 to £6,396.

Changes are afoot, however, with the NICs rates for both employers and employees alike. The following NICs rates will apply in 2022/23:

  • class 1 (employees) - 13.25% (up from 12%)
  • class 1 (employers) - 15.05% (up from 13.8%)
  • above the upper-earnings limit - 3.25% (up from 2%).

Student loans

From 6 April 2022, the plan-one student loan threshold will increase from £19,895 to £20,195.

Both the plan-two threshold and the postgraduate loan threshold will stay the same at £27,295 and £21,000, respectively.

If an employee's pay exceeds the threshold for their student loan plan, you'll need to make the correct deductions from their pay and report this to HMRC.

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