How UK Businesses Can Thrive Despite Rising Employment Costs
UK Businesses are at a critical juncture in 2025, confronting a perfect storm of economic and legislative challenges. At the forefront are a sharp increase in the National Living Wage to £12.21 per hour and a significant rise in employers' National Insurance Contributions (NICs). Together, these changes will substantially elevate operational costs for businesses already managing slim profit margins. Furthermore, reduced consumer spending and disposable income compound these issues, forcing many in the sector to rethink their staffing and cost management strategies.
This article delves into these pressing challenges and demonstrates how flexible staffing solutions, like those offered by Temper, can help businesses adapt, maintain efficiency, and thrive in this rapidly evolving landscape.
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Understanding the Challenges Being Faced in 2025
Record Tax Burden on Employers
In 2025, businesses are experiencing an unprecedented tax burden, with 21.3% of the costs of employing minimum wage workers now going directly to the Treasury. This represents a significant increase from 17.5% in the previous year and is the highest "tax wedge" since the introduction of the minimum wage in 1999.
These rising costs disproportionately impact industries such as hospitality, retail, and logistics, where minimum wage roles are predominant.
National Living Wage Increase
The National Living Wage for workers aged 21 and over is set to rise to £12.21 per hour in April 2025, up from £11.44—a 6.7% increase. This measure affects over 1.6 million workers and in the hospitality sector alone it will add an estimated £1.9 billion to the wage bill, according to UKHospitality.
Employer NICs Surge
On top of the National Living Wage increase, the government has also raised employer NICs from 13.8% to 15% as well as lowering the threshold for NIC contributions from £175 to just £95 per week. This change, combined with the increase in the National Living Wage, will significantly increase the total employers’ NIC contributions for employees earning the National Living Wage.
How NICs Will Change Per Employee for 2024 vs. 2025
The calculations in the table are based on the following formula:
NICs = NIC Rate × (Weekly Earnings per Employee − NIC Threshold)
This surge in costs disproportionately impacts businesses employing lower-wage workers, particularly in sectors like retail, hospitality, and logistics. Employers face a combined challenge of increased wages and taxes that strain their operational budgets.
The Centre for Policy Studies (CPS) has highlighted that the overall rise in employment costs, including taxes, represents a significant barrier for businesses, further emphasizing the need for policy adjustments and innovative solutions.
This is underscored by a poll in November 2024 revealing that 59% of employers were planning hiring freezes in the wake of rising National Insurance Contributions.
Restrictions on Zero-Hour Contracts
The recent proposed restrictions on zero-hour contracts represent a further layer of complexity for UK businesses, compounding the challenges posed by rising employment costs. While these contracts have provided businesses with much-needed flexibility to manage fluctuating demand, the proposed changes—such as mandatory permanent contracts after 12 weeks, advanced notice for shifts, and compensation for cancellations—significantly reduce this adaptability.
For sectors already grappling with increased wages and taxes, these restrictions make it even harder to respond to market fluctuations efficiently.
For many businesses, the administrative burden of monitoring hours, issuing new contracts, and maintaining compliance will drive up costs and strain HR resources. Moreover, the inability to scale the workforce dynamically may lead to understaffing during peak periods or overstaffing during slower times, further eroding profit margins.
In this context, traditional staffing models become less viable, prompting businesses to explore innovative solutions to balance flexibility with compliance.
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Industry Insights
In UKH's official response to the National Minimum and Living Wage increases, Kate Nicholls highlighted the severity of the situation:
"These wage rises are well above expectations and make the Budget even more important. It’s an added £1.9 billion to the hospitality wage bill, on top of the cost of the Employment Rights Bill, and, if rumours about the Budget are true, employer NICs and business rate rises. Trying to balance the books from the pockets of high street businesses will simply leave hospitality as collateral damage – threatening jobs, future investment, price increases for consumers, and business viability."
The hospitality sector has raised concerns about the big increase in tax costs for hiring a part-time employee following the government's reduction of National Insurance thresholds.
Julian Metcalfe, founder of Itsu, told the Daily Mail:
"That hurts many dads and mums who are looking after children and can only work 20 hours a week. They will cost employers nearly double. So what’s going to happen? You can’t employ them."
These statements reflect a harsh reality for the UK hospitality industry: rising costs necessitate difficult decisions, from reducing staff hours to investing in automation. Nicholls highlights the sector-wide implications, emphasizing how these financial pressures can undermine both business viability and employee livelihoods. Metcalfe’s commentary, on the other hand, illustrates the industry’s growing reliance on technology as a survival mechanism, showcasing the critical balance between innovation and workforce dynamics in addressing these economic challenges.
Labour Market Challenges Beyond 2025
Increased Competition for Talent
An increasing desire for flexible working arrangements is drawing talent away from traditional employment, requiring businesses to rethink how they attract and retain workers. To stay competitive, businesses should consider leaning into workers' desire for flexibility by utilizing flexible working arrangements and platforms for flexible work.
Demographic Shifts
An aging workforce and younger generations’ preference for flexibility and work-life balance are reshaping the labour market landscape. Businesses will need to invest in training programs to upskill older workers while simultaneously adopting technology-driven solutions to appeal to tech-savvy younger workers.
Economic Uncertainty
Slow economic growth and inflation pressures will require employers to adopt adaptive staffing solutions. By leveraging temporary and freelance talent, businesses can remain agile and reduce the risk of overstaffing during periods of fluctuating demand.
👉 Stay competitive in a changing labour market. Discover how Temper can help.
The Temper Solution: A Flexible Workforce for Changing Times
Businesses are striving for ways to mitigate increasing costs. Utilisation of technology and automation is becoming more and more prevalent, but it doesn’t replace the need for a skilled, adaptable workforce. This is where Temper steps in, offering a modern, cost-effective alternative to traditional staffing. Temper was founded to address workers' need for greater flexibility and autonomy in their work life, facilitating a model where people consciously choose to work on their own terms.
Through Temper, people have greater control over their schedules, allowing them to tailor their work-life balance to their own needs, enhancing overall satisfaction and motivation.
This is reflected in the quality of the professionals working through the platform. With thousands of qualified freelancers and hundreds of thousands of shifts completed each year, Temper has established itself as a reliable solution for businesses in need of flexibility and efficiency—with people you can count on.
Notably, the platform experienced a threefold growth in 2024 alone, underscoring both its rapid adoption and the shifting attitudes toward flexible work solutions among businesses and workers alike.
Additionally, Temper has always strived to give freelancers unparalleled rights and protections, offering collective insurance for every shift worked, guaranteed earnings, fast access to earnings, and generous sick pay.
These benefits ensure a level of security that is rarely seen in flexible staffing solutions, prioritising the well-being of platform workers.
More details on how Temper ensures worker protection can be found here.
The Temper Advantage
Dynamic Scheduling
Via Temper, businesses can post shifts in advance or last-minute to cover absences or respond to demand surges. These shifts can be as short or as long as you need, and you only pay for the hours worked.
This feature ensures that operations run smoothly even during unexpected staffing gaps or sudden increases in demand, reducing customer service disruptions.
Transparent, Cost-Effective Pricing
- FreeFlexer Rates: Starting from £12.50 per hour.
- Platform Fee: £3.50 per hour.
- Temper eliminates onboarding costs and ensures consistent rates without hidden fees. With this pricing structure, businesses have full control over staffing expenses, making it easier to plan budgets and reduce financial uncertainty.
Worker Ratings and Insights
Businesses can rate workers after shifts, maintaining a high-quality talent pool.
This rating system incentivises workers to perform at their best, while the platform’s analytics feature tracks labour costs and shift performance, providing actionable insights to improve staffing strategies.
Operational Flexibility
Temper’s scalable model supports both small businesses and large enterprises, making it adaptable to growth. Whether a business needs one additional worker for a day or a complete team for a seasonal surge, Temper provides the flexibility to scale up or down as needed without the long-term commitment of traditional employment.
Looking Ahead: A Sustainable Path for businesses and workers
The challenges of 2025 are formidable, but they are not insurmountable. Flexible staffing solutions, such as those offered by Temper, provide a lifeline for businesses grappling with rising costs.
By embracing a model that prioritises adaptability and efficiency, UK hospitality businesses can weather the storm and emerge more resilient.
Temper has already transformed the staffing strategies of thousands of UK businesses. Join them in navigating the challenges of 2025 with confidence and control.
