The 2025 budget announced an increase to both the National Living Wage (NLW), for workers aged over 21, and the National Minimum Wage (NMW).
From 1 April the NLW will increase by 4.1% to £12.71 per hour for workers ages over 21, which will result in additional earnings £900 across the year for full time employees.
While the NMW will increase by 8.5% to £10.85 per hour for workers aged between 18-20 and an increase of 6% to £8 per hour for workers aged 16-17. This will mean for any employees aged between 18-20, and working full time, they will receive additional earnings of £1,500 across the year.
But what does this mean for you as a business owner?
The first, and most obvious, affect will be the additional labour costs associated with these increases. This isn’t just the increase in salaries you will need to consider the increase in tax and national insurance payments, as the thresholds have remained frozen, and the additional pension contributions. While the additional costs may not seem too dramatic to begin with, they will add up. When you combine the salary increases, additional tax and pension contributions across all your employees it can add up fast.
So, how will you then deal with the additional payroll costs?
The first option is to pass these costs on your customers by raising your prices, but this comes at the cost of potentially alienating your existing customers or driving away potential new customers. Another option is to reduce staff hours to reduce the overall costs, but again there are costs. Can you still complete the same work with reduced hours? Could you lose staff who reply on those hours and can’t afford to reduce them? Unfortunately, there isn’t a clear correct choice here and it depends entirely on our individual business.
The next step would be to invest in more labour-saving technologies, which in the current climate revolves around using AI to automate tasks. This can reduce dependency on labour costs and saves money in the long run, but you will need to be careful to balance AI and human skills to make sure you aren’t losing out.
If you are concerned over how the increase to NLW and NMW will impact your business, or would like assistance in accounting for the increases, please get in contact with us.
