For employing small businesses in the UK, there will also be some upcoming changes to wrap their heads around following the October Autumn Budget.

New regulations and taxes are set to impact how small businesses pay their staff, amongst other things. With so much already on their plate, the added challenge of staying across changing legislation is daunting. However, with digital tools that help small businesses manage their finances and their payroll, these new requirements don’t have to be a burden.

What are the changes and how will they impact small businesses?

The Autumn Budget announced a number of changes. For example, starting in April 2025, Employer National Insurance Contributions (NICs) will increase by 1.2% to 15% while the level at which employers start to pay National Insurance is dropping to the first £5000 of staff’s wages. Additionally minimum wage rises are planned to support the cost of living. To support small businesses to continue to employ, there will be an increase in employment allowance from £5000 to £10,500 from April 2025. This means a small employer will be able to take off £10,500 of their National Insurance bill for the year, providing relief against the increased NICs costs.

Another recent change is the new flexible working law that took effect in April 2024. Now, employees can request permanent adjustments to their working terms – including hours, timing, or location – without waiting six months to make a formal request. This shift signals the end of 9-5 workdays and opens the door to flexible working, including remote work, compressed hours, or job sharing. There is also of course the newly proposed Employment Rights Bill too, which could shift things again in a few years’ time – although for now, nothing is set in stone and it is up for consultation.

While flexible arrangements may present initial challenges for small business owners, it's also an opportunity to keep good people around, and make sure they’re happy in their work environment.

Good digital payroll software tools can make it easy for owners to adapt to flexible working. For example, Xero has a  working patterns feature which makes it easy to set up bespoke working patterns depending on the business’ needs, apply that pattern to employees and it’s then automatically applied to their pay cycle.

Preparing for change: Steps for small businesses

Effective payroll management is more than basic wage calculations and requires in-depth knowledge of the UK tax system and employment laws – a tough ask for the 99.9% of UK businesses that are SMEs. For instance, one crucial aspect is correctly classifying workers – whether they're full-time employees, workers, freelancers, or contractors – as this determines their tax treatment and payment structure. Getting these classifications wrong can result in serious consequences, both legally and financially, and can be huge risks for small businesses.

Small businesses can take steps to ensure they’re ready:

• Update employee work arrangements: as flexible working becomes more common, keeping accurate, up-to-date information on employees' agreed working pattern and arrangements is essential
• Adopt a digital tracking system: moving away from pen-and-paper or spreadsheet methods will reduce errors and keep payroll data accurate, especially as working arrangements become more varied
• Reassess hiring practices: glexible work laws allow micro-businesses to strategically hire based on demand, enabling them to better align staffing levels with business needs throughout the year

Digital tools can do the heavy lifting for you

With more changes to navigate, digitisation is essential to remaining compliant and making payroll simple.

Businesses seeking operational efficiency are increasingly turning to integrated payroll and accounting solutions. By consolidating these functions onto a single platform, small businesses can leverage automation to streamline processes, reduce manual errors, and gain real-time visibility into their financial health.

These connected systems often offer compliance tools, helping businesses navigate complex regulatory requirements and automated RTI submissions to HMRC with ease. This holistic approach not only saves time and resources but also empowers businesses to make informed, data-driven decisions.

Using connected digital tools doesn’t just streamline operations – it equips business owners with the technology to scale, comply with regulations, and enhance employee experience all while enabling them to focus on what matters most – growing their business.

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