Companies employing staff on the National Living Wage (NLW) are braced for cost increases exceeding £2,100 per employee from April 2025, according to leading tax, audit and business advisory firm Blick Rothenberg.
The surge follows simultaneous hikes in the NLW and National Insurance Contributions (NIC).
Matt Crawford, a partner at Blick Rothenberg, says that with the NLW set to rise from £11.44 to £12.21 per hour, employers could see an annual increase of around £1,400 in wages per full-time worker. Topping that off is an extra £700 in NIC per employee, reflecting the Chancellor’s latest budget changes. “We know of several employers who are already revisiting hiring plans or scaling back pay rises for those slightly above the NLW as they balance their books,” adds Crawford.
Large firms with substantial numbers of lower-paid, casual employees—particularly in retail, hospitality and transport—are likely to feel the biggest squeeze. Smaller businesses, however, receive a partial cushion via the employer’s National Insurance ‘employment allowance,’ which will double from £5,000 to £10,500. While that mitigates some NIC increases for small businesses, they still must meet the same minimum wage requirements as larger employers.
In an attempt to manage overheads, companies are increasingly exploring salary sacrifice schemes, where employees effectively trade a portion of their salary for NIC-efficient benefits such as extra pension contributions or electric vehicles. But “these arrangements don’t help the lowest-paid staff,” Crawford says, as the law requires their gross salary to remain above the national minimum wage.
The upshot for many businesses with large pools of lower-paid staff is a reluctance to recruit or an introduction of overtime restrictions, warns Crawford. “These higher costs might push some employers to rein in expansion or reduce investment in order to stay within budgets,” he says, suggesting the new measures could have a ripple effect across multiple sectors when they come into force in April 2025.