What changes have been made to the NMW and NICs?

Each employee on the UK average wage will cost you £1,000 more per annum for NICs and minimum wage workers will cost you £2,500 more per annum. While these changes aim to improve the standard of living for employees, they can also strain the financial health of businesses, particularly those already operating on tight margins that cannot pass these cost increases onto customers.  Here’s what the changes look like:

The increase in the National Minimum Wage (NMW) will have a direct effect on employers’ wage bills.   Alongside this, the rise in NICs, especially with the lowered earnings threshold will expand the range of employee earnings subject to these additional costs.  As a result many businesses will need to reassess their operational models.  This could lead to shifts in workforce structures revised staffing strategies and added pressure on profit margins.

Sectors that employ staff on NMW rates such as retail, hospitality, healthcare, education and transport, are particularly exposed to these changes.  They will face increased outflows and a potential squeeze on profitability.  It is crucial that these businesses forecast cash flow accurately and implement financial planning measures to absorb the rising payroll costs and ensure liquidity.

However, the challenges extend beyond small enterprises.  Employees in larger organisations even those earning above the NMW may expect pay rises to match or exceed the NMW percentage increase to maintain their earnings in real terms.  This could create additional upward pressure on wage structures.  Employers should anticipate such expectations and proactively design remuneration strategies that balance employee retention with financial sustainability.

What’s more NMW compliance is not limited to hourly-paid workers. Employers must also ensure that salaried employees are not inadvertently underpaid. This requires reviewing contracts and calculating whether an individual’s annual salary divided by their total working hours meets the legal hourly minimum for their age group.

Employers are strongly advised to carry out detailed financial forecasts and budgeting exercises to assess the impact of these changes.  Early planning is key to making informed decisions that support business continuity and compliance.

How can you assess the impact of increasing NMW and NICs on your business?

As explained by Andrew McTear: “The first step for any SME to assess the impact of these changes on their business is to update their financial forecasts.  If these show you need to increase customer prices, then do so quickly.  If your customers won’t accept that then more radical action may be necessary.”

Key questions to consider include:

• How much have payroll costs increased?
• What is the current financial status of the business?
• Are there any areas where costs can be reduced without compromising quality or employee satisfaction?

How you can respond to NMW and NICs increases:

• Review and reduce costs – reduce other expenses to offset the increased labour costs.
• Increase your prices – Pass on increase costs to consumers by rising prices.
• Improve operational efficiencies – Consider ways the business can improve both efficiency and productivity to reduce costs.
• Review staffing levels – You can review your current team, along with working patterns, and remuneration strategies to maintain financial sustainability while remaining competitive in the labour market.

However you respond, ensure transparent communication with employees about any adjustments to maintain trust and morale.

How can insolvency specialists McTear Williams & Wood help?

McTear Williams & Wood offers a range of services designed to support SMEs facing financial distress due to increased national minimum wage and employer NICs. Here are some ways they can help:

Business Rescue

McTear Williams & Wood provides professional support to help businesses overcome adverse financial situations and return to profitability.  Their team works closely with SMEs to develop tailored strategies for recovery ensuring that businesses can navigate financial challenges effectively.  This includes detailed financial analysis, restructuring plans and ongoing support to implement changes.

Insolvency Advice

As explained by Andrew McTear: “Taking early advice is crucial when facing financial difficulties. At McTear Williams & Woods we are Licensed Insolvency Practitioners that offers confidential consultations to help SMEs understand their options and trade out of difficult situations if possible.  Our team provides guidance on managing cash flow pressures, restructuring finances and exploring alternative funding options. Taking and following our advice is your best chance of avoiding breaching directors’ duties and incurring personal liability.”

Free Business Health Check

McTear Williams & Wood offers a free business health check tool to assess the financial health of SMEs. This tool provides an indication of whether the company has what it needs to survive and outlines the types of liquidation available and next steps. It is a valuable resource for identifying potential issues early and taking proactive measures.

Confidential Advice Line

SMEs can access a free confidential advice line for distressed company directors. This service provides immediate support and guidance, helping directors regain control of their finances and explore recovery options. The advice line is staffed by experienced professionals who can offer practical solutions and emotional support during challenging times.

Conclusion

While the increases in the national minimum wage and employer NICs present challenges, they also offer an opportunity for SMEs to reassess and strengthen their business practices. By taking proactive steps to manage costs, enhance efficiency and seek support from experts like McTear Williams & Wood, SMEs can navigate this period of financial distress and emerge stronger.