On 6 April 2025 employers’ national insurance costs increased from £1,617 to £2,583 a year for each full-time employee on minimum wage, a 60% increase. Add in the increase to national minimum wage and the cost of employing a full-time minimum wage employee has increased by £2,367 a year.
As one of the most labour-intensive industries across the UK, Hospitality will endure further headwinds as these costs begin to impact cash flow. It’s more important than ever to seek out proactive ways to mitigate the increase in employers NI and other taxes, so that your business is retaining more of its cash.
Here are some of the ways that we are helping our clients manage their costs through 2025-2026:
Salary sacrifice
Salary sacrifice schemes work by providing a benefit to an employee in exchange for a reduction in their gross pay. This means that both the employer and the employee are paying less tax on earnings.
The most common example is salary sacrifice pensions:
- Employee sacrifices for example 5% of their pay into their pension.
- This leaves 95% of their pay to be charged PAYE and NI on the employer, which also pays employers national insurance on 95% of their pay, rather than 100%.
We’ve seen a number of examples recently where employers are reducing theirs and their employees’ tax burdens through this mechanism, which not only saves cost but also helps to retain staff as many competitors will not offer salary sacrifice schemes.
One caveat is that salary sacrifice schemes can not reduce taxable pay below the national minimum wage, so we have found that this works best for either:
Retention of management staff.
OR
Employers offering employees rates in excess of the national minimum wage.
Tronc systems
Almost 50% of hospitality businesses pay tips & gratuities to staff through payroll.
In doing so those tips are incurring both employees and employers’ national insurance. If a tronc system is set up, any tips or gratuities that pass through that tronc system to members of the team do not incur either employees’ or employer’s national insurance.
The tronc system must be set up separately away from management control and a Tronc Master appointed who is responsible for PAYE.
The resulting saving to companies is now around 15% of any amounts paid through the tronc system, up from 13.8% last year.
When the new tipping legislation was originally enacted in 2024, we shared practical steps that H&L employers can take to overcome this challenge.
Optimising staff numbers and hours
Flexible furlough during Covid has encouraged employers to look more closely at their operating hours and the number of staff required at specific times in the day, to ensure a lean workforce is in place.
Understanding your clientele and when they are going to be using specific facilities allows operators to reduce the costs associated with underutilised labour, as well as providing an improved experience.
Using an appropriate PMS or EPOS system can provide managers responsible for rotas with key insights into when and how staff are being used, to maximise efficiencies.
Ensure you are claiming the employer’s allowance
While the employers NI rate has increased and threshold above which it becomes payable has reduced, one small relief is an increase in the employer’s allowance to £10,500 a year.
We’ve seen examples of operators having not claimed the allowance for a number of years, most commonly where their payroll system may not automatically apply the relief and manual intervention is required.
It’s now more important than ever that operators are ensuring this relief is received to offset some of the increased costs.
Above are just some of the ways that we are helping our Hospitality & Leisure clients to mitigate the impact of increased employers National Insurance rates.
If you’re concerned about the impact of the current tax regime on your Hospitality & Leisure business, whether it’s employment taxes or corporation tax, please do get in touch with our expert team.
Contact Our Experts
