As the effects of the November 2024 Budget continue to be assessed, we’ve been looking at how the increased cost of employment will make a difference to the bottom line.
The National Minimum Wage rises in April 2025 by 77p to £12.21 per hour, which is a 6.7% increase.
Also from April 2025, the threshold on employee earnings at which employer National Insurance contributions apply will drop from £9,100 to £5,000. The NI rate will increase from 13.8% to 15%.
In this working example, we try to demonstrate how much your profits might need to increase in order to cover higher wages and employer NI contributions.
Let’s assume we have a manufacturing company employing 35 people.
Not all will be on minimum wage, but let’s factor in a 77p per hour increase for everyone, as this is the amount NMW had risen by.
Based on a 40-hour week, the wage increase per employee is £1,601.60. The overall increase for 35 staff is £56,056 per year.
The impact of the National Insurance changes also needs taking into account.
Just as a result of the threshold falling to £5,000, in this scenario, the employer will pay 15% on the £4,100 difference. This is an additional £615 per employee, or a total of £21,525 for 35 staff.
If everyone is on a £30,000 salary, the increase in employer NI contributions due to increasing the rate to 15% from 13.8% is £250.80 per employee, or a total of £8,778 for 35.
We then need to take into account the Employment Allowance, which reduces the bill slightly. This has increased to £10,500, up from £5,000 in recent years.
So, the final increase in the employment bill for this working example is £80,859.
Most employers simply won’t be able to absorb this level of additional cost. Something will have to change.
They could look to selling more units, but at a 60% gross profit margin per unit, turnover would need to increase by £134,765.
Running these same numbers for a smaller business, employing seven people, the additional annual cost will be £11,760.
What are the options for an employer?
In reality, the answer is likely to be a mix of all three. This is exactly where you need to have a handle on your numbers, and where we can help, so you can make informed decisions. At Optimum, we aim to translate the complicated calculations into numbers you recognise and understand.
If you are an employer, struggling with the implications of the Budget, why not talk to our team. Get in touch here or email info@optps.co.uk. We work with business owners across Swindon, Wiltshire, Cheltenham and Gloucestershire.
