Upcoming tax rises and employment challenges

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

In a recent study from the British Chamber of Commerce, businesses reported the following, describing them as a ‘powder keg of costs’:

• 82% of firms surveyed say the national insurance (NI) rise will impact their business
• Most responding businesses say the increase in NI will impact recruitment (58%) and prices (54%)
• Over three quarters (79%) of businesses do not feel the government has properly assessed the impact of its new policies
• The majority of firms (77%) are worried about the speed policy changes are being made
• 55% of firms say plans to change statutory sick pay will impact either their investment, recruitment, prices or day to day operations.

The impact of tax rises on businesses and employment challenges

From April, national insurance contributions will increase from 13.8% to 15%, with the earnings threshold reduced to £5,000. This change, combined with higher minimum wage rates, will significantly raise operating costs. Sectors like hospitality and retail, which rely heavily on lower-wage workers are expected to feel the brunt of these changes.

These tax rises could act as a “headwind” for labour market activity, potentially leading to a slight rise in unemployment. Employers are already tightening their hiring plans, with vacancies declining and payrolled employees dropping in recent months. Some employers are looking at alternatives to the traditional workforce. However, this is likely to only bring additional compliance risks with labour supply chains and Umbrella type structures.

Salaries are likely to increase at a much slower rate in 2025 than in recent years. Employers are wrestling with higher employment costs, leaving many businesses with less flexibility to offer inflation-beating pay rises.

Rather than passing on these increased costs to clients or customers, employers are instead absorbing them within their staffing budgets. This is leading directly to lower-than-expected pay increases for many employees, with an average pay increase of between 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.

Recruitment challenges in a shifting market

The employment report reveals a slowdown in hiring intentions, reflecting the cautious approach businesses are taking. With fewer vacancies and a slight uptick in unemployment, the job market is becoming increasingly competitive. Employers must rethink their recruitment strategies to attract top talent while managing costs.

How can businesses navigate these employment challenges?

• Use technology: AI-driven recruitment tools can streamline hiring processes and identify the best candidates efficiently
• Focus on employer branding: A strong employer brand can help attract skilled workers in a competitive market
• Offer flexible working options: Remote and hybrid work models can broaden the talent pool and appeal to diverse candidates.

Keeping your employees engaged amid employment challenges

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.

Retraining for a future-ready workforce

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: Reducing inefficiencies to save costs. This might inevitably lead to redundancies
• Exploring tax and NI reliefs and grants: Taking advantage of government schemes can provide support businesses during transitions
• Investing in Technology: Automation and AI can improve productivity and reduce operational expenses.

Conclusion

The challenges of April 2025 demand proactive and innovative approaches from businesses. The road ahead is uncertain, but with the right strategies, employers can navigate these obstacles and build a resilient workforce. By focusing on recruitment, retention, rewards, and retraining, businesses can not only weather the storm but also set themselves for long-term success.