A rising number of small and medium sized businesses are considering laying off staff due to the imminent increases to Employer NIC contributions and the National Living Wage, analysis from trade body The Global Payroll Association (GPA) has revealed.
During last October’s Autumn Budget, the UK government announced that the rate of employer Class 1 National Insurance contributions (NICs) would increase from 13.8% to 15% from April 2025.
In addition, April will also see an increase to the National Living Wage (NLW), also known as the National Minimum Wage, led by a 6.7 % increase to £12.21 per hour for over-21s.
Sentiment about these changes has worsened over time.
In November, 29% of SMEs said that the increase to employer NICs was going to put financial pressure on their business. Today 41% have real concerns.
There has also been a +3% increase in the number of businesses who say they have even greater concerns about the implications of the increase to the NLW, rising from 18% in November to 21% today.
Melanie Pizzey, chief executive and founder of the Global Payroll Association, said: “When we first ran this survey in November of last year, we were saddened but unfortunately not surprised to see that the immediate reaction to the Autumn Budget was one of great concern.
“There was, however, a hope that as the dust settled and businesses had time to properly evaluate the implications of higher NICs and a more generous NLW, sentiment would improve as more SMEs identified a viable path for navigating the changes without enduring too much pain.
“Sadly, it seems the opposite is true. In the intervening months, and having gained a greater understanding of what the future holds, even more businesses are expressing grave concern, with increased numbers now having to consider stripping benefits, avoiding new hires, and even cutting jobs simply to stay afloat in the wake of governmental intervention.”
The number of businesses who feel more inclined to push salary sacrifice arrangements as a result of the government’s changes now sits at 30%, marking an increase of +9.
Meanwhile, half (50%) of SMEs now say that the increases to NICs and the NLW mean they’re less likely to increase their company headcount over the next year, marking an increase of +8% since November.
Some 41% of SMEs now say that Budget means they are less likely to issue pay rises above the NLW, marking an increase of +6% since November, while the number of businesses that say there is a chance they will need to lay off staff in the wake of the Budget now stands at 34%, marking an increase of +8%.
Pizzey added: “To those businesses, I repeat what I said back in November: yes, staffing is likely your biggest overhead, but if you’re loath to punish your employees for the government’s decisions, it’s worth considering the alternative routes towards reducing costs that might be available to you.
“As a starting point, integrating technology into your business can streamline processes and eliminate unnecessary waste.
“If, for example, you currently outsource your payroll and HR to a third-party company, you might consider investing in a tech platform that can handle the duties for you at a fraction of the cost.
“While this immediate saving alone isn’t going to be enough, it will be a step in the right direction for minimising overheads without sacrificing the very workforce that enables your business to thrive so successfully.”
