More than a quarter of small and medium size businesses are planning staff cuts after the Autumn Budget’s changes to employer National Insurance contributions and the National Living Wage, research by the Global Payroll Association has revealed.
During the Autumn Budget on 30th October, the Labour government announced that the rate of employer Class 1 National Insurance contributions is to increase from 13.8% to 15% in April 2025.
Furthermore, the National Living Wage, also known as the National Minimum Wage, will also go up in April 2025, led by a 6.7 % increase to £12.21 per hour for over-21s.
Melanie Pizzey, chief executive of the Global Payroll Association, said: “Due to a huge pressure to honour election promises, the Labour government was unable to directly increase taxes on what they refer to as ‘working people’.
“As such, they have had to look at other ways to increase funding for the public purse, one of which is to increase National Insurance employer contributions.
“The issue here, of course, is that such an increase puts businesses under additional financial strain which will likely result in those same working people losing out on pay rises or losing jobs altogether.
“Add to this an increase to the National Living Wage and suddenly businesses are facing significant cost increases which leaves many wondering how to mitigate this increase.”
When asked whether the changes to National Insurance will put financial pressure on their business, almost a third (29%) of SME owners responded ‘yes’.
But for many, the increases to the National Living Wage are even more of a worry, with nearly 1-in-5 (18%) SME owners saying they are more concerned about mandatory wage growth than National Insurance changes.
More than one in five (21%) owners say they are now more inclined to push salary sacrifice arrangements such as pension contributions, and 35% say they are now going to be less inclined to approve pay rises beyond the National Living Wage next year.
But it’s not just wages and employee perks that are going to suffer as a result of the Autumn Budget, because SMEs are also preparing themselves to make significant headcount sacrifices to reduce costs.
Some 42% of owners say they are now less inclined to increase their workforce headcount next year and, more worrying still, more than a quarter (26%) may actually have to reduce their workforce through job cuts in order to help with the additional financial strain these incoming changes present.
Pizzey added: “While the workforce is, of course, the biggest cost to a business, there are other ways to reduce outgoings, not least through technology integration to streamline processes and maximise efficiency.
“At GPA. we’re seeing this done with great success in payroll departments, and no doubt the same can be done in almost all other corners of business.”
