Businesses across the UK are preparing for significant cost increases as the National Living Wage (NLW) and National Insurance Contributions (NICs) are set to rise in April 2025. According to leading tax and business advisory firm Blick Rothenberg, companies could face additional costs of over £2,100 per full-time employee, prompting many to reassess their hiring and wage strategies.
Breaking Down the Cost Increases
From April 2025, the NLW will rise from £11.44 to £12.21 per hour, translating to an annual wage increase of approximately £1,400 per full-time worker. On top of that, an additional £700 per employee in NICs will be required due to changes introduced in the Chancellor’s latest budget.
“Many employers are already revisiting hiring plans or scaling back pay rises for those earning slightly above the new NLW,” said Matt Crawford, a partner at Blick Rothenberg.
Impact on Businesses
The wage and tax hikes are expected to hit large companies the hardest, particularly in industries reliant on lower-paid workers, such as retail, hospitality, and transport. Smaller businesses will receive some relief through the employer’s National Insurance employment allowance, which will double from £5,000 to £10,500. However, they will still be required to meet the new minimum wage requirements.
To mitigate rising costs, some employers are looking into salary sacrifice schemes, where workers trade a portion of their salary for NIC-efficient benefits, such as pension contributions or electric vehicle schemes. However, low-paid staff are often unable to take advantage of such arrangements, as their salaries must remain above the legal minimum wage.
Possible Economic Ripple Effects
The financial burden of these changes is likely to have broader implications across the economy. Crawford warns that higher wage bills could lead to hiring freezes, overtime restrictions, and cutbacks on investment in expansion.
“These higher costs might push some employers to rein in growth plans or delay investment decisions as they work to balance their budgets,” he noted.
With businesses already grappling with economic uncertainty and inflationary pressures, the coming changes could force many to make tough decisions about workforce management in the months ahead.
