Salaries have been frozen and pay rises have been delayed ahead of the rise in employers’ National Insurance Contributions (NIC), which came into force on Sunday, a new survey has found.
More than a third of Midlands businesses (37%) have taken action on pay since the October Budget to prepare for the increase in both employers’ NIC and the National Minimum Wage (NMW).
More than a third of regional businesses (34%) have also chosen to use contract workers instead of recruiting, with 28% imposing a full recruitment ban. More than a third of Midlands businesses (37%) have chosen an alternative route by introducing or enhancing salary sacrifice schemes.
BDO’s Economic Engine survey of 500 mid-market businesses found that while some businesses have taken drastic action ahead of the changes, others are looking at ways to help retain and motivate staff in 2025, as costs increase within businesses.
According to the BDO survey, 37% of regional businesses are exploring new awards schemes to improve employee engagement, with nearly a third (31%) looking at flexible working and 34% planning to introduce wellbeing programmes.
Commenting on the survey findings, Steve Talbot, Head of Employment Tax at BDO in the Midlands, said: “The increases to employers’ National Insurance Contributions announced at the Budget, and the accompanying drop in the threshold at which NIC applies to employee earnings, have clearly forced many businesses in the region to take drastic action, freezing salaries and delaying pay rises, while also imposing full recruitment bans.
“As our previous Economic Engine surveys have shown us, Midlands businesses are keen to explore other options, as a way of mitigating cost increases, while also helping to retain and motivate staff. Wellbeing, training, flexible working and award schemes rank highly, as business leaders try to think outside of the box when it comes to balancing two important factors – finances and staff.”
Last week, the National Living Wage (for those aged 21 and over) also increased, rising by 6.7% to reach £12.21 per hour. Meanwhile, the NMW rates for those aged 18-20 increased by 16.3% to £10 per hour, while under 18s are now entitled to £7.55, up 18%.
BDO has warned that businesses face a growing compliance risk with the new NMW rates in force from 1 April. If incentives such as pension or other salary sacrifice schemes push employees below the minimum wage floors, this could bring the risk of HMRC sanctions such as penalties of up to 200% and being named and shamed.
Talbot said: “Those employers who have historically paid wages above the minimum levels may now find themselves in a position where they have to pay close attention to the rules to ensure they are NMW compliant.
“There are a number of risk areas for employers to consider – notably around salary sacrifice, deductions for uniforms or accommodation, or memberships of savings clubs that could in certain circumstances tip them over the threshold into non-compliance.
“All too often, we see household names appearing on the list of companies judged to have breached the NMW rules, many of whom are likely to have been tripped up on technicalities.”
