What the Autumn 2025 Budget Means for Employers and HR Teams

The UK Government’s Autumn 2025 Budget has introduced a number of measures with direct implications for employers, payroll, benefits, and workforce strategy. As an HR consultancy, we believe it’s critical for businesses to understand these changes and think strategically about what it means for hiring, compensation, and benefits planning.

Key Changes That Impact HR & Payroll

• Minimum and living wage increases — From April 2026, the statutory hourly wage rates increase: the national living wage (for over-21s) will rise from £12.21 to £12.71. For younger workers (18–20) and apprentices, minimum wage rates also rise significantly.

• Withdrawal of tax relief for home-working expenses — The relief many employees have claimed (for heating, electricity, broadband when working from home) will be abolished from April 2026. Employers who wish to support remote or hybrid working may need to consider directly reimbursing such costs to avoid burdening the team.

• Expansion of employer-benefits exemptions — On the positive side, the Budget widens which workplace benefits can be reimbursed tax-free. From April 2026, reimbursements for low-value benefits such as eye tests, home-working equipment, and flu vaccines will no longer trigger Income Tax or NICs potentially making such benefits easier and more attractive to offer.

• Changes to share-option & ownership incentives — There are reforms for employee-share schemes: thresholds for the popular Enterprise Management Incentive (EMI) scheme are being expanded (e.g. employee cap raised, asset limit increased, total value of share options doubled), and administrative burdens reduced. That may make share-based incentives more accessible for a wider range of companies.

• Additional compliance for contractors and umbrella arrangements — From April 2026, new rules under the forthcoming legislation (draft Chapter 11 of Income Tax (Earnings and Pensions) Act 2003) introduce a concept of joint and several liability: recruitment agencies — or ultimately the end client — could become liable for PAYE and NICs on payments made via umbrella companies. This increases compliance risk and responsibility for clients who use agency or contractor staffing models.

What This Means for HR Strategy & Workforce Planning

These changes create both challenges and opportunities:

• Budgeting for payroll rises: The increase to minimum and living wages means businesses with significant hourly-paid or entry-level workforce must re-budget payroll costs which could affect hiring plans, raise pressure on wage compression, and make retention more challenging if pay bands drift closer together.

• Reassessing benefits and remote-work policies: With the removal of home-working expense relief for employees, many employers may face pressure to reimburse home-working overheads if they want to continue supporting hybrid or remote working without penalising staff. On the other hand, the expanded tax-free benefits offer an opportunity to revisit benefit packages to boost employee engagement, wellbeing, and retention for example by offering equipment allowances, health-related benefits, or wellness initiatives.

• Leveraging share-based incentives: The reformed EMI scheme could be a powerful tool for attracting and retaining talent especially start-ups or growing SMEs by making share-options more widely available and administratively simpler. This could help align employees with long-term business goals, offset higher wage pressures, and foster a sense of ownership.

• Re-evaluating contractor / agency workers use: For businesses relying heavily on contractors or umbrella-company arrangements, the new liability rules may require a rethink of workforce models. Ensuring compliance will be more complex and potentially costly if the employer or agency becomes responsible for PAYE/NICs meaning engagement models may need to shift toward permanent employment or more robust contractor-management frameworks.

• Long-term compensation and workforce-cost planning: With reforms affecting pensions, share-incentives, benefits, and pay structure, HR teams will need to take a holistic view: it’s no longer only about salary but the full package and how that aligns with recruitment, retention, and business resilience.

At the end of the day, while the Budget brings cost pressures, it also offers levers to redesign how employers attract, reward, and retain talent with potential long-term gains for employee engagement, culture, and business growth.