The upcoming fiscal changes set to take effect in April 2025 will significantly impact small businesses, particularly those in the hospitality and retail industries.
With the increase in the national minimum wage and the rise in employer’s National Insurance Contributions (NICs), businesses must take proactive steps to mitigate financial strain.
This article explores what’s changing and, more importantly, how small businesses can adapt.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- Key employment cost changes in 2025, including National Minimum Wage and Employer NICs.
- Practical strategies small businesses can implement to manage rising employment costs.
What’s Changing in 2025?
The recent budget October 2024 has introduced significant changes that will directly impact employers.
National Minimum Wage Increases (April 2025)
From April 2025, the national minimum wage will increase as follows:
- Ages 16-17: £7.55 per hour
- Ages 18-20: £10.00 per hour
- Ages 21+: £12.21 per hour
This will increase payroll costs for businesses, particularly those in hospitality, retail, and service sectors.
Employer’s National Insurance Contributions (NICs) Rise
Employers will now pay 15% in NICs, up from 13.8%.
The Secondary Threshold is also being lowered from £9,100 to £5,000, meaning businesses will pay NI on lower earnings.
However, there is some relief, as the Employment Allowance is rising from £5,000 to £10,500.
Holiday Pay Adjustments
All employees are entitled to 28 days of holiday per year, including eight statutory bank holidays.
Businesses need to ensure their contracts explicitly state this to avoid additional liability if new public holidays are introduced.
In 2024, the King announced two additional bank holidays – businesses which didn’t specify 8 bank holidays had to pay out.
How Small Businesses Can Lessen the Impact
With employment costs rising, businesses need to be proactive in managing their workforce and payroll strategies.
Review Employment Contracts to Avoid Extra Holiday Pay
Many contracts state “20 days plus bank holidays” rather than “28 days including bank holidays.”
This can cause financial headaches if additional public holidays are announced, requiring businesses to grant more leave than expected.
Amending contracts to clarify that the 28-day entitlement includes bank holidays prevents this issue.
Utilise NIC Thresholds to Reduce Costs
If an employee earns below £416 per month (£96 per week), no employer NIC is due.
Businesses that can structure working hours to keep employees below this threshold can reduce NIC liabilities.
Additionally, employing under-21s is a cost-saving measure, as they are exempt from employer NICs altogether.
Optimise Work Schedules for Part-Time and Seasonal Staff
Businesses in hospitality, retail, and service industries often rely on part-time and seasonal staff.
Adjusting shift patterns and spreading hours across a larger pool of employees can help manage payroll tax liabilities while ensuring operational coverage.
Hiring students or younger workers can also offer cost efficiencies due to their lower NIC obligations.
Leverage Salary Sacrifice Schemes
Salary sacrifice schemes allow employees to exchange a portion of their salary for benefits such as pension contributions, cycle-to-work schemes, or childcare vouchers.
This reduces NIC and tax liabilities for both employers and employees.
Given the increase in employer NIC rates, these schemes become an attractive way to offer competitive benefits while keeping wage costs manageable.
Maximise the Employment Allowance
As of April 2025, all businesses are now eligible for the Employment Allowance of £10,500 (up from £5,000).
The previous £100,000 cap has been removed.
This directly offsets your NIC liability, so ensure that you claim this benefit.
Summary
The rise in minimum wage and employer NICs will significantly increase employment costs for small businesses.
However, by reviewing contracts, optimising staff hours, leveraging salary sacrifice schemes, and claiming the Employment Allowance, businesses can manage these changes effectively.
If you’re unsure how to structure your payroll, manage staff costs, or take advantage of tax-saving opportunities, get in touch with us at Tax Expert today.
Fill out our form here for any questions, give us a call at 01772 788200, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel