Cost of employing low-paid workers to increase by over £2,100 per employee from April 2025
The cost of employing low paid workers is set to sky rocket by over £2,100 per employee from April 2025 due to the increase in National Living Wage (NLW) and National Insurance Contributions (NIC), say leading tax, audit and business advisory firm, Blick Rothenberg.
Matt Crawford, a partner at the firm, said: “The cost of employing a full-time worker on the NLW is set to increase by over £2,100 per annum per employee due to the changes in both the minimum wage and the increase in employer’s NIC announced in the Chancellor’s first budget.”
He added: “The increase in the NLW from £11.44 to £12.21 per hour is responsible for around £1,400 of the additional cost and an extra £700 will be payable in NIC. I am aware of a number of employers who have decided to not increase their staffing numbers or are considering less generous salary increases for staff paid slightly above the NLW to make up the shortfall in their budget.”
Matt said: “The increases are going to be particularly felt by the employees of larger businesses, with significant numbers of lower paid and casual workers such as those in the retail, hospitality and transport sectors. Smaller businesses are partially shielded from the National Insurance increase as the ‘employment allowance’ is being increased from £5,000 to £10,500 a year.”
He added: “The employment allowance is deducted from a businesses employer’s NIC bill, meaning businesses with only a handful of employees are not as negatively impacted as larger employers. However minimum wage legislation applies to all employers irrespective of size, likely offsetting any advantage small businesses may have otherwise felt from the employment allowance increase.”
Matt said: “Businesses can take steps to reduce their NIC liability and I am seeing an increase in employers looking to explore these options. Salary Sacrifice schemes (effectively swapping salary for NIC efficient benefits) are the most popular option, with additional pension contributions and electric vehicles being considered by many.”
He added: “However these possibilities do not work for the lowest paid employees as the gross salary paid must always be in excess of the relevant minimum wage, leaving businesses with large low paid and casual workforces looking to reduce hiring and introduce overtime restrictions to make ends meet.”