Time flies, doesn’t it?
Who remembers the budget that was announced by the UK government in October 2024? The reaction for most SME’s was negative but, unfortunately, that doesn’t change the inevitability of it coming into effect!
Some of those major changes come into effect on 6th April 2025, so what do SME’s need to be aware of?
Updates to the National Living Wage (NLW) and National Minimum Wage (NMW)
In case you didn’t know the difference between the 2, the National Living Wage (NLW) applies to workers 21 and over (reduced from 23 and over in April 2024) and the National Minimum Wage (NMW) applies to workers and apprentices under 21.
The NLW was introduced in 2016 to ensure older workers earn a fair wage, in line with the cost of living and reflects the additional financial responsibility that workers 21 and above are likely to have, compared to those under 21.
The NMW is split into 2 categories, 18-20 years old and 16-17 years old & apprentices again recognising the difference in financial responsibilities of each age group.
Summary of the changes:
- The National Living Minimum Wage (payable to workers who are 21 and above) goes up by 6.7%.
- In real terms, the hourly rate increases from £11.44 to £12.21 – which is worth an additional £1,400 a year to full time workers!
- For those lucky enough to fall into the 18-20 years old category, the increase in the National Minimum Wage is 16.3%.
- The hourly rates for these guys increase to a solid £10.00 an hour, from £8.60.
- Apprentices are not left out either, with their minimum hourly rate increasing to £7.55 an hour, from £6.40… an 18% increase!
The UK government actively enforces minimum wage laws and, for Employers who fail to pay the correct rates, fines of up to 200% of the underpaid wages (capped at £20,000 per worker) can be issued.
Increases in National Insurance Contributions
From 6th April 2025, the UK government will increase Employer National Insurance Contributions (NICs) from 13.8% to 15% for earnings above £5,000 (previously £9,100). The change is designed to increase the government coffers but from a business perspective, means increased payroll costs, particularly impact SMEs and labour intensive industries.
Summary of the changes:
- Higher Payroll Costs – Employers will pay an extra 1.2% on salaries above £5,000, increasing total employment expenses.
- Lower Threshold – The NI threshold is being reduced, meaning more earnings will be subject to NICs.
- (Some) Relief for Small Businesses – The Employment Allowance will increase from £5,000 to £10,500, exempting an estimated 800,000 small employers from NICs.
Your accountant or payroll provider will no doubt make these updates for you and advise the new amounts you’ll need to pay but, it’s good to be aware of the impact and reflect it in financial forecasting information.
How can your business mitigate these increases?
The reality is that most businesses are going to be negatively impacted by these changes and unfortunately, there isn’t much getting away from it.
In terms of reducing the severity of the impact, as mentioned above, incorporating these figures into your financial forecasting will help ensure no nasty surprises when it comes to making commercial decisions further down the line. Utilising self-employed staff or outsourcing support services can minimise the impact, as well as introducing or enhancing a salary sacrifice scheme where an employee can take a lower salary in exchange for other benefits e.g. pension contributions.
Potential Opportunities
One route that your competitors may be taking is to increase their prices. This would protect their profit margin with the assumption that their turnover levels will remain the same but, this does leave them open… if you were to keep your prices the same or even reduce them!
Some might say this is a risky approach but think about it for a minute. It’s like that most of, if not all of, your competitor’s will be impacted by these changes in the same way that your business is. The logical thing would be to increase prices to reduce the impact but by taking a different approach, whilst you reduce your profits through the enforced NIC increases, you can potentially increase your volume by becoming a more competitive option.
Whilst we don’t take responsibility for the success or failure of you adopting this option within your business, the logic is sound. Many SME’s were started by entrepreneurs who, by their very nature, are more comfortable with taking risks so we hope this stands you in good stead for what is going to be another challenging year!
How can 365Jobs help you in 2025?
A job posted on our platform does not have to be a permanent job, it can be a self-employed role, a fixed term contract or a contractor position. By partnering with Reed, Total Jobs, LinkedIn, Monster and Jobsite, we provide a platform with a UK reach, that covers any industry and any job. Advertise for multiple roles in the same posting (e.g. 4 x Customer Support Manager’s) and save time by viewing all candidate CV’s and managing their applications in our free to use ATS.
And we’re putting our money where our mouth is and following our own advice. Starting 6th April 2025, to try and do our bit to support SME’s, we are reducing our price per job to £299 for all of April.
It’s important that the SME community stick together during these challenging times so give us a like, a follow or create an account and post a job of your own!
