Managing Minimum Wage and National Insurance Increases: Strategies for Mitigating Risks and Reducing Costs Related to Workforce Expenses in 2025 

In 2025, the United Kingdom will experience changes in the economic and workforce landscape due to an increase in National Insurance contributions and the national minimum wage. These adjustments will elevate costs for organisations employing both permanent and non-permanent workers. 

These adjustments, introduced by the new Labour government, aim to enhance social welfare and ensure fairer wages. However, the resulting increase in costs means that organisations will inevitably want to identify new initiatives to achieve savings elsewhere. 

Employer National Insurance increases are from 13.8% to 15% on 6th April 2025, whilst the threshold for when organisation’s start paying NICs will drop from £9,100 to £5,000 per year.  

The National Minimum Wage in the UK will also increase, from 1st April 2025. The new rates are:  

These increases are the largest on record for the 18–20 age group. The government anticipates that this increase will correspond with the higher cost of living and enhance wages for adult employees. 

The new National Insurance rates and increase to minimum wage will result in higher financial responsibilities for employers, affecting operational budgets and investment plans. Businesses and organisations will be looking at how they can implement various cost-saving strategies to balance these additional expenses while ensuring productivity and profitability. 

The effect of legislative changes on the public sector 

The increase in National Insurance Contributions and the National Minimum Wage will particularly impact on the public sector, where budget constraints are often tighter and more rigidly controlled and scrutinized.  

These changes will drive up employment costs, further straining public sector organisations already operating under financial pressure. Consequently, public institutions may need to reallocate funds, potentially reducing budgets for other areas to meet the increased payroll demands. Efficient workforce management and strategic financial planning will become imperative to maintain service delivery standards without compromising on compliance or incurring unsustainable costs. 

Minimising Risk 

Adhering to new regulations requires updating payroll systems, employment contracts, and maintaining accurate records. High penalties for non-compliance necessitate vigilance. 

This focus on compliance demands careful planning and resource allocation. Non-compliance risks include HMRC scrutiny for unpaid taxes and complications in calculating owed amounts. 

MSPs (Managed Service Providers) can support businesses with legislative changes in several ways, including: 

Organisations with many lower-wage workers will see the biggest cost increase with new minimum wage rates. Updating payroll systems and employment contracts is essential to avoid penalties, ensure smooth operations, and maintain regulatory compliance. 

Proactive Workforce Analysis and Cost Saving Initiatives in Operations 

Rising employment costs will increase operational expenses, requiring a review of financial allocations. By anticipating these changes, organisations can manage workforce expenses effectively while maintaining productivity. 

To manage rising employment costs and maintain productivity, organisations should use technology to streamline operations and allow the workforce to focus on strategic growth tasks. 

Reassessing and renegotiating supplier contracts could help manage costs. Using MSPs for administrative tasks and regulatory compliance reduces the load on internal resources. 

Cost-saving initiatives to mitigate the impact of legislative changes may include re-procuring the supply chain to focus on a smaller group of strategic partners - enabling more competitive rates while safeguarding suppliers' revenue.  

There are additional ways organisations can further reduce the costs associated with attracting talent. Transitioning more workers from temporary to permanent roles, filling open vacancies without sourcing new candidates by transferring existing workers with transferable skills to relevant roles, and exploring direct sourcing opportunities for the contingent workforce are all approaches with proven cost saving results. 

Communicating Changes Across the Supply Chain  

Changes to National Insurance and minimum wage will affect the agency supply chain, requiring timely and efficient communication with suppliers. 

For organisations with an MSP, collaboration between the MSP team, supplier relationship managers, and client stakeholders is crucial to understand legislative changes, devise strategies, and assess supply chain impacts. 

MSP Operations and Supplier Relationship Management Teams should be collaborating with clients to understand the legislation, devise scenarios, assess impacts, and determine exemptions.  

This proactive approach aims to ensure that regulatory compliance is maintained without hindering operational efficiency or inflating costs. 

Driving Efficiency with a VMS 

A Vendor Management System (VMS) can help manage national insurance and minimum wage increases by automating rate updates and job titles, ensuring compliance with new legislative requirements. 

A VMS leverages automation to handle large-scale updates efficiently, transforming what would typically be weeks of manual work into hours or days. This efficiency is further enhanced by built-in controls that manage changes based on specific dates, such as minimum wage updates and age-related rate changes.