There’s no doubt that the financial measures unveiled in this week’s budget will put severe pressure on employers across the country. The latest challenges for employers come in the form of a “triple whammy” courtesy of the Chancellor: an increase in the national minimum wage, a rise in employer National Insurance contributions, and a reduction in the National Insurance threshold.
Together, these changes place a significant burden on businesses, particularly those with tight margins, potentially leading to a wave of redundancies as companies seek to reduce costs and remain viable.
Despite a slight reprieve in the form of the Nation Insurance allowance that only the smallest employers are likely to benefit from, there wasn’t an awful lot for employers to be positive about. The specific impacts are likely to be:
1. Minimum Wage Increase: This year’s increase has been significant with the largest increase for 18-20 year olds as the Government moves towards implementing parity in pay across ages. Despite the Chancellor taking the credit for improving living standards by increasing the NMW, let’s remember that this doesn’t cost the Government anything and, in fact there will be an increase in tax revenues as more employees are pushed into paying tax and paying more tax on account of the pay ride. An increase in the national minimum wage affects not only entry-level roles but also impacts wage structures across organisations. As wages rise, employers may need to increase salaries across multiple levels to maintain pay equity and morale. For many businesses, especially those in sectors with tight profit margins like hospitality and retail, this wage increase alone could be unsustainable.
2. Employer National Insurance Contributions: It was no secret that this one was coming and the budget’s increase in the employer National Insurance rate means businesses will be paying more in tax for each employee. National Insurance is, at the end of the day, just another form of tax after all. This rate hike directly impacts operating costs, further squeezing profits. For smaller businesses, this additional cost might be the tipping point that forces them to consider staff reductions.
3. Reduced National Insurance Threshold: With the threshold lowered, employers now begin paying National Insurance contributions sooner. This affects all levels of employees, increasing the financial burden on businesses that may already be struggling. The combined effect of these three changes will leave many employers re-evaluating their financial commitments and looking for cost-saving measures, often at the expense of jobs.
Having still feeling a lag from Covid, followed by the Cost of Living Crisis, most businesses have already taken various measures to cut costs over the past few years, whether through reducing overheads, streamlining operations, or limiting discretionary spending. However, with this new set of financial pressures, the options for further cuts become limited. When every other area of expenditure has been streamlined, reducing staff costs might appear to be the only viable option for survival.
Of course, making the decision to cut jobs is never easy. Employers do not want to put people out of work, but if redundancies are unavoidable, it’s essential to approach the process carefully, both legally and ethically. Cutting roles should be seen as a last resort, ideally one that positions the business for future stability and potential growth.
When redundancies become necessary, it’s critical for businesses to follow proper procedures to avoid legal repercussions. Mishandling redundancies can lead to costly tribunal claims, which can negate any savings the business hoped to achieve through job cuts.
We’ve covered these before but here is a reminder of some best practices to ensure a fair and compliant redundancy process:
Focus on the Position, Not the Person: Redundancies should target specific roles or positions rather than individuals. If multiple employees hold the same role, even across different sites, businesses must implement a fair selection process to decide who is affected.
Use a Selection Matrix: For businesses considering redundancy among multiple employees, a structured “selection matrix” is recommended. This approach uses a scoring system based on factors such as skills, qualifications, performance, and attendance to help objectively determine who will remain. It removes some of the emotion from the process and provides a transparent basis for decisions.
Be Mindful of Protected Characteristics: When scoring employees, be careful not to penalise any absence or performance issues that could be related to a protected characteristic, such as disability or family leave. Failure to take this into account could lead to discrimination claims.
Consultation and Communication: Employees have the right to be consulted during the redundancy process. If 20 or more positions are at risk, a formal consultation period of at least 30 days is required. Open communication is essential, and employees should be informed of their right to bring a representative to one-on-one meetings.
Clear Documentation: Keeping thorough records of all discussions and decisions is crucial. Documentation demonstrates transparency and is vital if any decisions are later questioned.
While redundancy decisions are difficult, delaying the process can prolong uncertainty, increasing stress for both affected employees and those remaining. Prolonging decisions also means continued financial strain, which can put the entire business at risk. Acting promptly and following a clear, legally compliant process helps protect the business, provides clarity for employees, and gives the company a foundation for potential recovery.
For employers, the goal should be to make necessary decisions while treating affected employees with fairness and respect. In doing so, companies can protect both their financial viability and their reputation, positioning themselves for stability in the future whilst maintaining the dignity of affected employees.
Given the complexities involved in the redundancy process, seeking external support can help ensure all steps are compliant and fair. HR Champions offer redundancy support services, including advice on best practices, documentation templates, and practical guidance for consultations and selection processes. Contact us for more information vis our contact page.
