Are rising employee expenses killing the job market?
The job market in the UK is facing an unprecedented crisis, and there are signs that it may get worse.
Unemployment has risen to 4.6 per cent in the three months prior to May 2025, the highest it has been in four years, but there are 63,000 fewer jobs listed during the same period.
Rising employment costs are also being blamed for the lack of new hires, pay rises, and retentions.
Many businesses are already struggling to keep pace with rising operational costs, and employee expenses can snowball quickly.
Why are employment costs so high?
As part of a pledge to shield workers from rising costs, the Labour Government has not increased Income Tax or National Insurance Contributions (NICs) for employees.
Instead, businesses are left to bear the brunt of rising NICs, an increased National Living Wage, and National Minimum Wage.
The changes to NICs have hit most businesses as the thresholds have changed significantly.
Starting in the 2025 Tax Year, the secondary threshold at which employers begin paying Class 1 NICs dropped from £9,100 to just £5,000 per annum, and the rate of pay rose from 13.8 per cent to 15 per cent.
This was supposed to be offset somewhat by an increase in the maximum relief offered by Employment Allowance from £5,000 to £10,500, but fiscal drag pulls many businesses over this threshold, resulting in an overall increase to the NIC bill.
How can businesses manage rising employment costs?
Careful financial planning may be the only way for businesses to navigate the rising employment costs without sacrificing talent or growth.
Outsourcing is a useful method of avoiding the bulk of employment costs, as this can allow for high-quality, professional work to be completed without incurring the expenses of wages, NICs, pensions, and other associated costs.
There may be future increases to employment costs later this year or in the next tax year if Labour remains committed to its pledge not to increase the burden on employees.
This means that businesses need to optimise cash flows and embrace clear financial forecasting to ensure that they can keep pace with all future burdens.
Seeking professional financial support is the best way to prepare for the future.
Having a strong team of talent is the key to all success in business, and money management can preserve this without disrupting your growth.
Don’t lose your talented team to rising costs. Speak to us today!
