Like many of us, I awaited last month’s budget with trepidation – its timing during Halloween week seemed fitting for what had the potential to be one of the scariest budgets in decades.
While Reeves’ budget wasn’t as disruptive as some anticipated, it will still have a significant impact on employers across the UK. Firstly, the rise in employers’ National Insurance (NI) contributions from 13.8% to 15%, combined with a reduction in the threshold at which employers start paying NI from £9,100 to £5,000, will significantly increase the cost of both new hires and existing staff. So much so, that some of our larger clients will see their NI bills increase by over £10 million in the next financial year.
Then there’s the minimum wage increase. The National Minimum Wage for 18 to 20-year-olds will rise by 16.3%, from £8.60 to £10 an hour – the largest increase on record. The National Living Wage will also increase from £11.44 to £12.21 an hour starting next April.
All of this will have a significant impact on employers of all sizes across the country, including:
Increased Costs for Employers
- Higher NI contributions and wages will raise operating costs, potentially leading employers to scrutinise headcounts or slow recruitment to manage budgets.
- Smaller businesses may struggle to compete with larger firms that can absorb the increases more easily.
Pressure to Offer Competitive Pay
- With the National Minimum Wage rising, employees on or near the minimum wage will expect comparable uplifts to maintain parity with the new rates.
- While minimum wages have increased by nearly 75% over the past eight years, wages for top earners have risen by only c.35% in the same period. With budgets focused on raising pay for lower earners, this trend is unlikely to change, potentially fostering resentment among senior employees.
Retention Challenges
- Rising living costs, coupled with modest pay increases in many sectors, could drive employees to seek roles with better compensation or benefits elsewhere.
- Employees may prioritise roles offering job security, development opportunities, and flexibility, particularly in this challenging economic environment.
It isn’t all doom and gloom, though. Despite the pressures the budget places on employers, we are well-equipped to help our clients navigate these stormy waters. By ensuring our clients have a well-defined and effective employer brand, we enable them to reduce recruitment media spend, increase retention, and attract the very best talent to their businesses.
Another way we’re helping our clients reduce costs during these belt-tightening times is by creating exceptional employee referral programmes. This allows them to recruit engaged talent without spending thousands on recruitment agency fees or external advertising.
When our clients need to advertise externally, we offer market-leading media strategies that treat their budgets with the same care we would our own, ensuring fantastic conversion rates and ROI.
If the above sounds like something that could help your organisation come next April, give us a shout!
-Steve Johnson, Client Partner
