While changes to employment law and National Insurance are nothing new, the Government’s reforms represent a fundamental shift in how businesses are being asked to approach everything from payroll to probationary periods. For SME owners and managers, these changes demand not just compliance, but a strategic rethink of how they manage their workforce.

Here are some of the key changes coming into force in April

• The national minimum wage will increase from £11.44 to £12.21 per hour for workers aged 21 and above
• The minimum wage for workers aged 18-20 will increase to £10 per hour
• Employer National Insurance Contributions (NICs) will increase from 13.8% to 15% and the threshold at which they are payable will decrease from £9,100 to £5,000
• Statutory sick pay will increase from £116.75 to £118.75 per week
• Statutory maternity pay will increase from £184.03 to £187.18 per week
• Statutory paternity pay, adoption pay, shared parental pay, and parental bereavement pay will also increase to £187.18 per week
• The Retail, Hospitality and Leisure Business Rates Relief Scheme will provide eligible, occupied, retail, hospitality and leisure properties with a 40% relief, up to a cash cap limit of £110,000 per business. The previous relief rate was 75%, with the same cash cap

For most businesses, it will be the National Insurance changes that have the biggest impact. Calculations using our payroll and employment platform of 90,000 UK employees, shows that an SME paying the median wage of £35,600 for a full-time worker will pay an extra £78 a month, or £932 a year, with a total NIC bill of around £4,590 per employee.

Wage increases pose a challenge for sectors like hospitality, retail and care, where labour costs often account for a large portion of operating costs. Businesses in hospitality or retail who rely on younger workers will be particularly impacted. For example, a cafe with ten 18-20 year olds working 20 hours a week each, would see their wage bill rise by £3,360 due to this change alone.

What relief is available?

The government has significantly enhanced the Employment Allowance, which lets you offset a certain amount of your NIC liability as an employer.

The increase from £5,000 to £10,500, coupled with the removal of the £100,000 eligibility cap, means the very smallest could effectively offset their entire NIC liability - and many other businesses can write off up to £10,500 of it. While this won’t be a game-changer for a firm with 20 employees facing a £100,000 liability, it is something. But early claiming is essential to maximise its benefits.

Here are 5 more things your business can do to offset the increases and retain employees

Ensure your payroll systems are ready for these changes

This means not just updating software to reflect new rates and thresholds, but also reviewing your approach to workforce planning and budgeting. It’s best to assess your payroll structure to manage rising employer contributions and keep your cash flow steady. Implementing new cloud-based payroll software could save you days of time with this, and in the long run too.

Evaluate your staffing model

It’s important to look at your current staffing levels and plan accordingly for the short and long term. Review your mix of full-time, part-time and contract employees and adjust the model where needed to help you maintain profitability. You could also speak with your employees about switching to more flexible working, also a great benefit for employees who want to work at different times of the day.

Review your use of technology and AI

Look to implement new systems and processes that can help your team and business be more productive. Not only does this mean that you can keep recruitment to a minimum, but you will also be helping your employees with a better work life balance, leading to less stress and burnout.

Negotiate contracts and suppliers

Review all of your current contracts and partnerships to see if you can amend your scope of work and reduce costs. If this proves difficult, you may need to look at increasing the fees you charge for your services and your terms of contracts. Involve employees in cost saving initiatives and ask them their thoughts on what makes the most sense. A problem shared, is a problem halved after all.

Employee rewards and recognition

Pay increases and bonuses may be challenging and limited for a period of time, so now is the time to look at providing employee reward and recognition in other ways, such as salary sacrifice schemes, more holiday days, more working from home days to save on commuting costs, Apps that give employees benefits for health and wellbeing goals.

Looking ahead, successful navigation will require more than just technical compliance. SMEs need to think holistically about their employment practices and cost structures, considering how these changes might affect their competitiveness, recruitment strategies and overall business model.

If you’re feeling overwhelmed by these changes, remember that support is available. Professional advisors, industry bodies and government resources can all help you navigate this transition. Reliable employment and payroll software like Employment Hero will make compliance simple, ensuring your business stays up to date with the new rates and employment law changes.

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