When you own a small business, you will likely know that from January to April, it is all go-go with everything from taxes, VAT increases, and changes in labor laws in the UK.
In 2025, the Labour Government seeks to bring about an increase in minimum wages. From April 1st, the minimum wage for workers in the UK will increase from £11.44 to £12.21 per hour, meaning an increase in around £1,400 for workers on minimum wage per year.
Of course, with costs rising in other areas around the UK for businesses, this can be a difficult adjustment, especially if you have an entire staff that is made of minimum wage workers. So, if you are a small business owner, read on, as here, you will be walked through how this change will likely impact your business, and how you can ease the blow.
Cut Backs
There is no point beating around the bush here; if you have minimum wage workers, this is going to cause an increase in wage costs, which means, if your profits are paper thin, you will either need to change your business plan, get more money coming in or make cutbacks.
Making cutbacks is an ideal solution for many business owners, and if you have departments in your small business, like HR, you can source it out to other companies. Indeed, Companies like the HR Dept in Grimsby can save you the hassle of having to house an HR team, without compromising your business. You will still get the requirements met for your staff, but you will only have to pay for the service as and when you need it.
Look Into NIC Thresholds
National Insurance Contributions. There. It’s been said, and it’s a headache for small business owners and freelancers alike!
Anyway, if you have part time employees, or even student staff, it’s worth reviewing the NIC thresholds to see if you can save some money. If an employee or a student earns below £416 per month in your business, there is no employer NIC due. You can even structure working hours to keep employees below this threshold, as this will minimize NIC liabilities for your business.
It may even be the ideal time to start looking into hiring staff that are under 21, as they are exempt from NIC contributions altogether, as are freelancers. In the UK, freelancers are responsible for paying their own NIC and, if possible, it can be worth using them to boost staff numbers and expertise, without having to worry about paying NIC or regular wage costs,
Salary Sacrifice Schemes
This always sounds more dramatic than it is. Such schemes allow staff to sacrifice part of their salary for other benefits, which can save small businesses a fortune.
For example, a part time employee who is caring for children may be happy to exchange some of their cash pay for childcare vouchers. Indeed, as NIC prices are also going up, such exchanges are a great way to attract new talent to a small business, without having to go bankrupt to pay staff wages.
Maximise Employment Allowance
As of April 2025, all small businesses are eligible for Employment Allowance of up to £10,500, which has increased from £5,000 from the previous year. Be sure to check this out, as it directly offsets the NIC liability and can help with the costs of running a small business. In short, it can knock £10,500 off of your NIC contributions, which is no small thing!
Look at Work Schedules
If your business is in the hospitality industry, the catering industry or the service industry, you will usually rely on seasonal staff.
However, if you run a small plant shop near a marina, operating with this type of shift pattern may not be as instinctive. Luckily, it can be easily adjusted. You can opt to spread working hours over a larger number of staff, hiring part-time workers to cover more shifts. This does save money but comes with the issue of having to rely on more people to get work done, which can go awry if certain staff members don’t show up to work. It can also create complications in payroll.
If possible, it is worth hiring students or younger people to cover shifts, as they have lower NIC contributions and can be a cost-effective solution, while also allowing your business to grow this year.
In short, the minimum wage increase will likely hit small businesses hard, but if you are still stuck, please seek the advice of a tax accountant. Good luck!
