The Impact of National Living Wage on Businesses
In April 2025, both the National Living Wage (NLW) and Employers’ National Insurance Contributions (NICs) are increasing, which is expected to impact thousands of businesses. Some economists are predicting 150,000 job losses, while major UK retailers like Greggs are warning of big price hikes. If you’re an employer and you’re worried about the financial implications of the October 2024 Budget, we’ve shared some recommendations.
The new NLW for workers aged 21 and over will rise from £11.44 to £12.21 per hour, which is a 6.7% increase. Coupled with adjustments in National Insurance Contributions (NICs), many employers in England could face significant financial challenges.
As an example of the potential financial impact, let’s look at the employer cost of a full-time employee working 37.5 hours per week. The NLW increase equates to an annual salary of approx. £23,810, which increases annual payroll expenses by around £1,400 per employee.
Increase in the National Living Wage (NLW)
From 1 April 2025, the National Living Wage (NLW) rates will increase as follows:
New Minimum Wage rates from 1st April 2025
Changes to Employers’ National Insurance Contributions (NICs)
From April, Employers’ National Insurance Contributions (NICs) will rise from 13.8% to 15%. Also, the earnings threshold for paying NICs will decrease from £9,100 to £5,000 per year. Therefore, employers will soon have to start paying NICs at a much lower level.
As a way of mitigating these costs, the Employment Allowance will increase from £5,000 to £10,500. The £100,000 cap for eligibility will also be removed, allowing more employers to benefit from Employment Allowance.
The changes to NICs are expected to have an industry-wide effect, especially in sectors that regularly employ minimum wage level and part-time workers. Therefore, staffing costs need to be a top priority for many businesses ahead of the next financial quarter.
What are the implications for employers?
There are various financial and operational implications for employers as a result of these changes:
Higher payroll costs: The combined impact of higher wages and increased NICs will substantially raise employment costs. This will be particularly significant in sectors with a greater number of minimum wage workers, such as retail, hospitality, and social care.
Increased operational pressures: Employers might need to review their operational strategies to manage these additional staffing costs, such as making price adjustments, efficiencies, or workforce restructuring.
Potential job losses: Although the government’s measures aim to improve workers’ salaries, there are concerns that the changes could result in substantial job losses. Current estimates suggest that the NIC increase could lead to industry-wide job reductions, particularly for lower-wage positions.
Recommendations for Employers
If you’re worried about the implications of the changes to the National Living Wage and Employers’ National Insurance Contributions (NICs), here are some recommendations:
Plan your budget: Review and adjust your budgets so you are able to accommodate the increased financial pressure on wages and NICs.
Check operational efficiencies: Identify any areas where you could enhance productivity levels and reduce costs without compromising on service standards.
Create a workforce strategy: Look at the potential impact on staffing and explore options such as upskilling employees to maintain performance levels.
Check payroll compliance: Update your payroll systems to reflect the new rates and thresholds, so you can ensure full compliance with employment law.
Review your staffing levels and costs
Are you worried about the financial impact of the changes to the National Living Wage and Employers’ National Insurance Contributions? By proactively addressing these changes, employers will be in a better position to navigate the financial challenges ahead. You will also be better able to support your workforce effectively. Therefore, we recommend reviewing your staffing levels and costs well ahead of the changes in April.
Sources:
https://www.gov.uk/government/news/national-living-wage-to-increase-to-1221-in-april-2025
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2024-to-2025
https://www.talkstaff.co.uk/true-cost-employing-minimum-wage-2025
https://www.insideaccounting.co.uk/2024-autumn-budget-how-does-it-affects-employers