Budget 2025 - What a shocker!

I have read many articles and even more comments on various media platforms and news sites and there are several misconceptions in the public view about the 1.2% increase in employer NICs. So let's start with that.

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When 1.2% is not 1.2%

The absolute kick in the teeth is not really the 1.2% increase, it's the lowering of the band NICs start at from 9100 to 5000. This means that every employee that earns over 5000 and under 9100 per year (£758.33 a month at the 9100a year level) now costs their employer an extra £615 a year in NICs.

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1950 hours at 11.44 is 22308 - 9100 = 13208 | 13.8% is 1822.70

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1950 hours at 12.21 is 23809.50 = 1501.50 extra salary

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23809.50 - 5000 = 18809.50 * 0.15 = 2821.43 - 1822.70 = 998.72 + 1501.50 = 2500 a year extra per minimum wage employee

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Those NICs have gone from 1822.70 to 2821.43 which is around a 54.8% increase in NIC costs. That is per employee so a company of 10 needs to find an extra 25,000 to cover the extra costs of business. There is a 10,500 claw back but that is only allowed for one of your companies so those with multiple companies are going to be screwed one way or the other but that brings the total down to 14,500 which is almost the entire salary of a minimum wage worker.

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What is everyone going to do?

Anything that can be outsourced on services like fiverr is all but certain. You can pay per piece of work and essentially move your fixed salary costs over to gig economy work, most likely in another country where minimum wage (if it exists) is much lower.

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Knowledge work will be moved to other economies. Why hire in the UK when you can get the same skillset in Eastern Europe or Asia for 1/3 the cost and lower NICs or employment taxes if they exist? This leaves the physical jobs that can not escape these costs such as shelf stacking, coffee and sandwich servers, cooks, chefs and so on that cannot be done remotely. These will likely be replaced by robots and digital terminals.

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Minimum Wage increase by 6.7%

Taking minimum wage on its own without looking at taxes or anything else that has also increased leaves our companies needing to find an efficiency gain of 6.7% per employee per year. Broken down 6.7% is approximately 2.5 hours a week or 30 minutes a day. Now that is an easy opportunity to seize to claw back some cash or increase productivity.

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As we see it there are 3 options to keep your staff salaries at their current rate.

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1. Reduce your employee hours by 2.5 hours per week 37.5 hours a week is 429 per week 35 hours a week at 12.21 is 427.35 per week, some people may want this as they are able to earn the same for less work but I think most will want the extra money to help cover all their other bill increases.
2. Automate - There are numerous things that your employees do everyday that can be automated. It should be very easy to find a process that can be automated down to the click of a button taking a 30 minute process down to a 30 seconds. In fact saving just 10 mins a day saves over 5 working days a year. Save 30 mins a day is a total saving of over 17 days a year.
3. Cut costs - Do you really need the office space in the digital age? When employees can be in different countries does it still make sense to require everyone to be together all the time? Other costs to cut can be any perks you get with the job. Company cars, private medical benefits, Christmas parties and so on.

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The choice will be down to what your employees are after and what your business is able to negotiate.