The Autumn Budget has landed, and for HR professionals and business owners, it’s brought a mix of anticipated changes and some surprises that will reshape workforce planning over the coming years.
Announced on 26th November 2025, this budget introduces several changes that will affect employment costs, hiring, salary structures, and benefits, among other areas of business. Some of these changes are immediate, but most will take effect from April 2026 or later, with significant pension reforms not arriving until 2029.
Whilst many changes won’t come into effect for years, now is the time to understand what’s coming and start planning.
Businesses that get ahead of these changes will be better positioned to manage costs and stay competitive in an environment that is becoming increasingly expensive for businesses to exist in.
In this article, we’ll take the time to analyse the key employment-related changes from the budget, when these changes take effect, what they mean for your business and employees, and the practical steps you can take to prepare.
The Headline Changes That Affect Employers
Let’s start with what’s changing and when you need to be ready.
National Living Wage and Minimum Wage Increases (April 2026)
From April 2026, rates are once again rising.
The National Living Wage for those aged 21 and over will increase by 4.1% to £12.71 per hour. For younger workers, the rises are even larger: the National Minimum Wage for 18-to 20-year-olds will jump 8.5% to £10.85 per hour, whilst rates for 16-to 17-year-olds and apprentices will rise 6% to £8 per hour.
Simply put, this means higher employment costs, particularly for businesses employing younger workers or those in sectors relying heavily on entry-level positions.
Income Tax Threshold Freeze Extended (Until 2031)
Tax thresholds will remain frozen until 2031, creating what’s known as “fiscal drag”. As wages rise with inflation and normal pay progression, nearly 1 million employees will be pulled into higher tax brackets without any actual change to tax rates.
By 2029-30 alone, an estimated 780,000 additional people will be brought into paying income tax.
The impact? Employees will see their take-home pay squeezed even when receiving pay rises, which will inevitably affect salary expectations and negotiations.
Changes to Salary Sacrifice for Pensions (April 2029)
From April 2029, pension contributions above £2,000 annually will no longer be exempt from National Insurance Contributions. It’s worth noting that other schemes, like bike-to-work, remain unaffected.
Fortunately, this long lead time gives businesses breathing room to prepare and make informed decisions about benefits packages rather than rushing into changes.
Employee Ownership Trust Relief Reduced
Capital gains tax relief on the sale of shares to an Employee Ownership Trust will be cut from 100% to 50%. Whilst this reduces the tax advantage, it still maintains a strong incentive for employee ownership models and aligns with the government’s ambition to double the size of the co-operative economy.
How This Affects Your Business
Rising Employment Costs
The immediate impact is clear. Minimum wage increases will directly affect payroll costs from April 2026. Businesses with significant numbers of younger workers will see proportionally larger increases. That 8.5% rise for 18-to 20-year-olds is substantial, so sectors relying on younger and entry-level employees need to factor these costs into budgets now.
In the long term, frozen tax thresholds mean employees may increasingly request higher gross salaries to maintain their current take-home pay.
Salary progression becomes more expensive as employees move between tax brackets, and wage increase requests are likely to become more frequent and pressing. When someone’s moving into the 40% tax bracket, a £2,000 rise doesn’t deliver the impact it once did.
A Focus on Strategic Recruitment
Higher employment costs will force many businesses to be more selective in their hiring.
Technology and automation become more attractive options for some roles, though they’re not suitable solutions everywhere.
Having strong and discerning hiring practices that will ensure you find the right people the first time has now become even more important, because the cost of getting it wrong and having to rehire is climbing.
Retention takes on even greater importance, too. The cost of replacing staff increases alongside employment costs, making it more expensive than ever to lose good people.
There is an interesting twist: higher minimum wages for younger workers might actually help you retain entry-level staff by improving job satisfaction.
Benefits and Compensation Strategy
Despite the 2029 pension changes, salary sacrifice schemes will remain valuable.
In fact, frozen tax thresholds may make the tax efficiency that these schemes offer even more important to employees. Schemes may be particularly attractive to those moving between tax brackets.
April 2029 might seem distant, but a great employee benefits package takes time to adjust thoughtfully. Employers have breathing room to see how employee behaviour shifts and to review entire benefits packages rather than making reactive decisions.
Preparing for What’s Ahead
For April 2026 (Wage Increases)
Review your budget now. Calculate the actual cost impact based on your current workforce. Which roles and age groups will be most affected? Build these costs into your 2026/27 financial planning so they don’t arrive as an unwelcome surprise.
Assess your pay structure. Are your current pay differentials sustainable with higher minimum wages? Will compression between entry-level and experienced roles cause issues? You may need to consider wider pay reviews to maintain fairness and keep your structure solid.
Evaluate hiring plans. Can you afford the same headcount at higher rates? Where might technology or process improvements offset labour costs? Pay benchmarking can help ensure you remain competitive whilst controlling costs, as you need to pay enough to attract talent without overextending your budget.
For 2029 (Pension Changes)
Use the time wisely. Monitor how salary sacrifice schemes perform over the next few years. Watch for guidance from HMRC and payroll bodies as implementation approaches.
Review your total rewards package. Consider how pension changes fit into your overall benefits strategy. Are there other benefits that might become more attractive to employees as pension tax advantages are reduced? Balance tax efficiency with genuine, practical value.
Invest in systems and training. Ensure your payroll systems can handle the changes when they arrive. Train your team on new requirements well in advance of implementation and create clear policies so everyone understands how schemes will work under the new rules.
Ongoing Actions
Communicate proactively. Don’t wait until changes are imminent to talk to employees. Help people understand how frozen tax thresholds could affect their take-home pay and what it could mean for their finances. Secrecy breeds anxiety and mistrust, so it will likely serve you well to be transparent about how your business is adapting.
Stay informed. Further guidance and detail will emerge as implementation dates approach. Keep up with HMRC updates and professional body guidance. Ad-hoc HR support can help you navigate complex changes without needing to become a tax and employment law expert yourself.
What to Do Now
Three key dates to mark: April 2026 for minimum wage increases, April 2029 for pension changes and 2031 for the end of the tax threshold freeze. Each one will affect your costs and how you approach workforce planning.
Here’s what you should do:
- Calculate the actual cost impact on your business based on your current workforce and hiring plans.
- Review your pay structure and benefits packages to ensure they’re sustainable and fair under the new landscape.
- Plan your recruitment strategy with higher costs firmly in mind.
- Communicate changes clearly to your team so everyone understands what’s happening and when.
- Seek expert guidance where needed.
The Autumn Budget brings challenges, but with the right planning and support, you can manage them whilst continuing to build a workplace where people genuinely want to work.
Need help managing these changes? We’re here to support you with practical, straightforward HR advice that makes sense for your business.