How to Manage Rising Payroll Costs this April

As we approach April 2025, businesses across the UK face significant financial shifts. With the government confirming an increase in Employer National Insurance contributions and another rise in the National Minimum Wage, it’s imperative for businesses to understand how these changes will affect their operations and plan proactively to protect their bottom line.

Understanding the Changes

First, let’s briefly summarise the changes coming into effect:

From April 6, 2025, employers' National Insurance Contributions (NICs) will increase, with the secondary Class 1 NIC rate rising from 13.8% to 15%, and the secondary threshold decreasing from £9,100 to £5,000. 

Here's a breakdown of the changes:

• Increased NIC Rate:

The rate of employer NICs (secondary Class 1 NICs) will increase from 13.8% to 15%. 

• Lowered Secondary Threshold:

The secondary threshold, the point at which employers start paying NICs, will decrease from £9,100 to £5,000 per year. 

• Employment Allowance Increase:

The Employment Allowance, which helps eligible employers reduce their NIC liability, will increase from £5,000 to £10,500.

• Removal of Eligibility Threshold

The £100,000 eligibility threshold for claiming the Employment Allowance will be removed. 

• Impact on Businesses:

These changes will mean that many businesses will pay more employer National Insurance than before, along with lower-income and part-time workers being included in the NI system.

·        National Minimum Wage Increase:

From April 2025, the National Living Wage (NLW) for those aged 21 and over will increase to £12.21 per hour, while the National Minimum Wage (NMW) for 18-20 year olds will rise to £10.00 per hour. 

Here's a breakdown of the changes:

• National Living Wage (21 and over): £12.21 per hour (up from £11.44) 

• National Minimum Wage (18-20): £10.00 per hour (up from £8.60) 

• National Minimum Wage (16-17 and Apprentices): £7.55 per hour (up from £6.40) 

• Accommodation Offset: £10.66 per day (up from £9.99

Potential Impacts on Businesses

As an HR consultant, I’ve spoken to multiple business leaders across sectors. Here's what we've identified as common impacts these changes may cause:

• Increased payroll expenses: Businesses must immediately allocate additional funding to cover higher NIC and wage obligations.

  
  

• Potential cost-cutting elsewhere: Companies facing these hikes might be forced to reduce expenses in other operational areas or curtail future investment plans.

  
  

• Recruitment slowdown: Higher employment costs may cause businesses to pause recruitment, potentially limiting growth.

  
  

• Employee hours and flexibility adjustments: Companies might be tempted to reduce working hours or restructure their workforce composition to balance higher wage costs.

  
  

Proactive Measures to Mitigate Financial Impact

Fortunately, proactive businesses can take practical measures to adapt, minimise the impact and remain financially resilient:

1. Budgeting and Forecasting

• Thoroughly review your financial forecasts to factor in these additional costs.

• Scenario-plan multiple financial outcomes and ensure you have adequate financial buffers.

  
  

2. Improved Workforce Management

• Carefully evaluate staffing structures: analyse shift patterns, employee productivity and work allocation to ensure you maximise efficiency.

• Consider smarter scheduling software that can predict demand patterns and streamline employee hours accordingly.

  
  

3. Invest in Training and Development

• Equip your current employees with better skills and knowledge, thus enhancing productivity. A more productive workforce can offset increased hourly costs by achieving greater outputs in less time.

• Internal promotion and upskilling can often be a cost-effective way of filling skills gaps, reducing recruitment and onboarding costs.

  
  

4. Explore Automation and Technology Solutions

• Invest in automation, or digital solutions that boost productivity, reduce manual labour and help optimise staffing requirements.

• Even small businesses can find affordable software or technology to simplify repetitive tasks and free up employee hours for more impactful work.

  
  

5. Flexible Working and Hybrid Models

• Adopting flexible working practices can decrease overhead costs such as office rent, utilities and travel expenses, thereby creating savings that can offset increased employment costs.

• Hybrid work also often improves employee satisfaction and retention, reducing recruitment and training expenses in the long run.

  
  

6. Review Employee Benefits Packages

• Look closely at your employee benefits package. Sometimes, restructuring or customising benefits can lead to significant savings while still maintaining a positive employee experience.

7. Communicate Transparently with Employees

• Communicate clearly and openly with employees about upcoming financial pressures and explain the rationale behind any operational changes.

• Employees who feel included and understand business challenges are more likely to contribute ideas and accept necessary changes.

  
  

Final Thoughts

While the incoming increase in Employer National Insurance and the rise in the minimum wage will inevitably bring financial challenges, businesses that anticipate these changes can turn potential setbacks into opportunities for positive growth, increased efficiency and stronger employee engagement. By adopting thoughtful, proactive measures, you can protect your profitability while also providing a sustainable, fair and productive workplace.

The key is preparation, adaptability and proactive management; qualities that resilient businesses across the UK will undoubtedly continue to showcase in the face of evolving financial landscapes.

How We Can Help You

We understand the financial pressures businesses face with your upcoming payroll increases. We can offer tailored support to help you prepare for these challenges successfully. We can provide in-house or virtual workforce training, specifically designed to enhance productivity, skill development, and employee efficiency, helping you offset higher wage costs.

Additionally, we can assist your business with detailed budgeting and forecasting, enabling you to accurately project, plan, and manage the financial impact of increased Employer National Insurance and minimum wage costs. With our personalised guidance, your business can confidently adapt and thrive amidst these changes.