The latest information of The Global Payroll Association (GPA)reveals that more than a quarter of UK small and medium-sized businesses are considering downsizing as a result of the autumn budget changes to employer contributions to National Insurance and the national living wage.
During the autumn budget on 30 October, the Labor government announced that the rate of employer contributions to Class 1 National Insurance will be increase from 13.8% to 15% in April 2025. Furthermore, the The national living wage, also known as the national minimum wage, will also increase in April 2025.led by a 6.7% increase to £12.21 per hour for those aged 21 and over.
Both changes are expected to put significant pressure on UK small and medium-sized businesses (SMEs) as the cost of recruiting and retaining employees increases.
To assess how businesses might react to these changes, GPA commissioned a survey of SME owners* to find out what measures they plan to take to mitigate the upcoming increase in staff costs.
When asked whether the changes to National Insurance will put financial pressure on their businesses, almost a third (29%) of SME owners answered “yes”.
But for many, the increases to the national living wage are even more worrying: almost 1 in 5 (18%) SME owners say they are more worried about mandatory wage growth than changes to National Insurance.
But how do SMEs plan to deal with these increases in staff costs?
More than 1 in 5 (21%) landlords say they are now more inclined to push for pay sacrifice arrangements, such as pension contributions, and 35% say they will now be less inclined to approve pay increases beyond the Living Wage National next year. year.
But it’s not just employees’ salaries and benefits that will be affected as a result of the Autumn Budget, because SMEs are also preparing to make significant workforce sacrifices to cut costs.
42% of owners say they are now less inclined to increase their workforce next year and, more worryingly, more than a quarter (26%) may have to reduce their workforce through job cuts to help with additional financial strain. these incoming changes are present.
Melanie Pizzey, chief executive and founder of the Global Payroll Association, said: “Due to enormous pressure to deliver on election promises, the Labor government was unable to directly increase taxes on what they call ‘working people’. As such, they have had to look at other ways to increase funding from the public purse, one of which is to increase employers’ contributions to National Insurance.
The problem here, of course, is that such an increase puts companies under additional financial pressure that will likely result in those same workers missing out on pay increases or losing jobs altogether.
Add to this an increase in the national living wage and suddenly businesses are facing significant cost increases, leaving many wondering how to mitigate this increase.
While workforce is, of course, the biggest cost to a business, there are other ways to reduce expenses, including by integrating technology to streamline processes and maximize efficiency. In GPA. “We are seeing this done with great success in payroll departments, and the same can certainly be done in almost every other corner of the business.”