Employment challenges and upcoming tax rises

As we approach April 2025, businesses are preparing for a challenging landscape filled with uncertainty. Recent employment reports shows a nervous picture, reflecting the challenges posed by upcoming tax increases. With national insurance contributions and minimum wage rates set to rise, businesses must adapt to ease risks and sustain growth.

Key employment tax changes

The 2025 Spring Statement has left employers with a lot to consider.

The planned increase in employer national insurance contributions (NICs) from 13.8% to 15%, effective April 2025, remains unchanged
The secondary threshold for NICs will drop from £9,100 to £5,000. While these changes will raise payroll costs, the employment allowance will double to £10,500, providing some relief to smaller businesses
There are also planned increases to the national minimum wage.

The 50:50 tax increase debate

Economists have warned of a 50:50 chance of further tax increases in the Autumn Budget. The Office for Budget Responsibility (OBR) has highlighted there isn’t much room in the budget. Because of this, the Chancellor might need to take extra steps to keep the country’s finances stable. Employers need to stay alert and think ahead to reduce potential impacts. It’s hard to predict what the government will do, but being informed and ready is essential.

The Government’s compliance and HMRC plans

The government is increasing efforts to fight tax evasion and improve compliance. As part of the Spring Statement, HMRC will get funding to hire 500 more compliance officers and 600 debt management staff over the next three years, including some for offshore compliance. These steps aim to reduce the tax gap, which is currently £40 billion. However, there are worries about training new officers effectively since experienced staff are leaving.

Employer challenges in 2025/26

The upcoming tax year brings several hurdles:

Rising costs: Higher NIC rates and minimum wage standards will put pressure on budgets. Sectors like hospitality and retail, which depend on lower-wage workers, are expected to be hit the hardest by these changes.These tax increases could slow down the job market, possibly causing a small rise in unemployment. Employers are already cutting back on hiring, with fewer job openings and a drop in payrolled employees recently. Some are considering alternatives to the traditional workforce, but this might lead to more compliance issues with labour supply chains and umbrella-type structures.
Compliance: Employers need to adjust to new payment rates and expanded employee rights.
Talent management: Balancing cost efficiency with competitive pay will be crucial to keeping top talent. Salaries are expected to rise more slowly in 2025 than in recent years. Employers are dealing with higher employment costs, which means they have less flexibility to offer pay rises that keep up with inflation. Instead of passing these costs on to clients or customers, employers are absorbing them within their staffing budgets. As a result, many employees are seeing lower-than-expected pay increases, with an average of 2-3% expected.Additionally, bonuses are being cut and, in some instances, not paid. In short, employees will bear the brunt of these rising employment costs through a drag on salary growth.

Strategic adjustments

Review Payroll and Expense Systems: Make sure you’re ready for NIC and wage adjustments.
Explore Salary Sacrifice: Reduce NIC liabilities by contributing to pensions.
Invest in Efficiency: Use automation to help offset rising labour costs.

Recruitment challenges in a changing market

The employment report shows that businesses are being cautious, leading to a slowdown in hiring. With fewer job openings and a slight rise in unemployment, the job market is getting more competitive. Employers need to rethink their recruitment strategies to attract top talent while keeping costs under control.

Navigating these employment challenges

Use technology: AI-driven recruitment tools can make hiring processes smoother and help find the best candidates quickly

Focus on employer branding: A strong employer brand can attract skilled workers in a competitive market

Offer flexible working options: Remote and hybrid work models can expand the talent pool and attract diverse candidates.

Engaging your employees during challenging times

Retaining employees is more critical than ever, as the cost of replacing staff continues to rise. Employers must prioritise employee well-being and engagement to reduce turnover. Key strategies include:

Competitive compensation: Adjust pay structures to reflect the new minimum wage rates. Offer performance-based incentives to motivate your team
Wellness programs: Provide mental health support and flexible schedules to boost morale and loyalty
Career development opportunities: Invest in training and upskilling programs to help employees grow within your organisation
Share reward options: Consider schemes like Enterprise Management Incentive (EMI) to keep your key employees engaged and invested in your company’s future growth and success

Recognition also plays a vital role in employee satisfaction. Celebrating achievements, offering non-monetary benefits (using trivial and non-taxable benefits), and fostering a positive work environment can make a significant difference.

Preparing your employees for future employment challenges

As industries evolve, so do the skills required to succeed. Employers must invest in retraining initiatives to build a resilient and adaptable workforce. This includes:

Identifying skills gaps: Regular assessments to understand training needs
Accessible learning opportunities: Online courses, workshops, and certifications that fit into employees’ schedules
Encouraging lifelong learning: Cultivating a culture of continuous improvement benefits both employees and the organisation
Apprenticeship levy: making the best use of money you have paid in or is available to draw down on.
NI savings for apprenticeship programs: there are NI savings for employers where employees are on formal apprenticeship schemes and are under 25

Financial planning and innovation

To manage rising costs, businesses should explore innovative solutions and optimise their operations. Here are some key strategies:

Streamlining processes: Reduce inefficiencies to save costs, though this might lead to redundancies
Exploring tax and NI reliefs and grants: Take advantage of government schemes to support businesses during transitions.
Investing in technology: Use automation and AI to improve productivity and reduce operational expenses.

Conclusion

The challenges of April 2025 require businesses to be proactive and innovative. The future is uncertain, but with the right strategies, employers can overcome these obstacles and build a strong workforce. By focusing on recruitment, retention, rewards, and retraining, businesses can not only survive but also thrive in the long term.

What strategies are you considering to tackle these changes? Let’s discuss! Contact Steve Ashworth, Joe Rowsell or Tamara Beach.