How can businesses budget for increased NMW and National Insurance costs?

Changes announced in the Autumn Budget present a number of challenges to business owners, ones which cannot be ignored and require some careful consideration and planning.

Autumn Budget changes

The main changes directly for businesses are the increased costs in relation to employers National Insurance Contribution (NIC) and National Minimum Wage (NMW)/National Living Wage.

With employers NICs rising to 15% (up from 13.8%), and the threshold – the point at which employers begin to pay NI on an individual’s salary - reduced from £9,100 to £5,000, the majority of businesses will face a significant increase in costs, even with an offset coming from an increase in Employment Allowance. The increase in NI will also impact class 1A benefits in kind, which is another consideration for businesses providing benefits.

There were significant increases announced for the National Minimum Wage, particularly for those aged 20 years and under, and from April all employers will pay a minimum of £10 per hour for staff over 18 years. This will hurt a lot of smaller businesses in certain sectors, but will be widely felt across the economy.

How can businesses plan for the incoming changes?

How businesses react and plan for these changes could be key to their success. Business owners should start by approaching the issue logically and systematically.

Forecasting and budget setting is commonplace across all businesses and the Autumn Budget has heightened the importance of such tools. Finance teams, working alongside business owners and advisers, should be flexing those budgets and ensuring proactive decisions can be made in the lead up to the changes being introduced in April 2025.

As a starting point, businesses will need to work out the increase in employment costs as a result of the changes. This will vary from business to business depending on staff numbers and pay. Finance teams will need to consider what measures can be taken in forecasting models to account for the increased costs. DOWNLOAD OUR FREE FORECASTING TOOL. 

Once businesses have a grasp of the increase in costs, decisions will need to be made as to how they can be mitigated. Is it simply a case of passing these costs onto customers, or do businesses need to think outside the box and ensure a range of measures are put in place to finance the increased costs?

Measures to mitigate increased employment costs

Such measures will, no doubt, include sales price increases but as all businesses know, the right value needs to be communicated clearly and concisely to ensure implementation.

Other measures, which again feel inevitable, will likely see an impact on current staff wage inflation for those already earning above NMW, and the recruitment of new staff. Staff retention and recruitment could take a real hit depending on the business owner’s outlook.

We would encourage a healthy debate with your finance team and adviser to ensure the mixture of measures remain in line with any strategic plans and that they are not short-term knee jerk reactions. The trajectory of the business for strategic growth will have a short-term impact from these increased costs but there will be a solution; an efficient mix of measures that will enable the business to navigate this Budget (and those in the future) whilst remaining on course to achieve your short, medium and long-terms strategic goals.

To supplement the measures above, the business should be continually challenging the environment it operates in.

• The purchasing cycle - challenging supplier pricing or terms as well as internally ensuring the lowest levels of wastage from procedures and employees alike.
• The sales cycle - ensuring products and services are delivered in a timely manner with customers paying within terms and employees involved maximising existing and new customer relationships.
• General costs of the company - are all the costs often referred to as administration costs under control and at the most efficient level they could be? Business are likely to find savings in this area by reviewing them regularly.

Over the coming months, we would encourage businesses to plan and ensure their strategy remains in place. It can be achieved. The cost increases can be mitigated, so it is important not to panic and take time to plan.

We are here to assist and help businesses make informed decisions. We can be as involved as you need and can assist with forecasting models. Acting now, you can minimise the impact of the Autumn Budget on the strategic aims of your business.

For further advice and support please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.