Increased Employers National Insurance and National Minimum Wage - Threat or Opportunity?

Nobody I’ve spoken to, and nothing I’ve read since Rachel Reeves announced the increases to Employers’ National Insurance Contribution (ERNIC) and, to a lesser extent, the National Minimum Wage (NMW), suggests there is any good news for employers in this ill-considered government policy.

Spoiler alert: this article will not reveal otherwise!

However, that’s not to say CEOs and CFOs cannot use this unwelcome “attack” by the government on growth and employment as a catalyst for positive change and improvement.

There are broadly two ways in which our specialist consultants at ERA Group can help organizations in this respect:

Optimalizace nákladů

Commission a full “opportunity assessment” by inviting ERA Group to review the costs on your purchase ledger for the last 12 months.

Our expertise, strategic approach to supplier management, and leverage are highly likely to deliver sustainable annual cost reductions—as well as numerous intangible benefits and process improvements—that will far outweigh the c.10% hike in payroll costs that employers will face from April due to the ERNIC and NMW increases.

Furthermore, this will be achieved with no reduction in the quality of goods or services purchased. And, given ERA Group’s “contingent fee” business model, the assessment will be conducted entirely at our risk.

Prefer to just raise prices?

If you can, go for it! But the two things are not mutually exclusive. Take the opportunity to grow profits by increasing revenue and reducing costs.

Restructuring

If you’re reading this article, you probably already know that strategic cost reduction is at our core—it’s what we do.

However, beyond this, ERA Group, in conjunction with strategic partners, offers an opportunity to review your entire approach to attracting and, more importantly, retaining talent. Retaining talent, by the way, also reduces costs.

Very few organizations can grow successfully without putting people at the forefront of their strategy. Yet, many CFOs either pay lip service to “people and culture,” see it as “an HR thing,” or overlook it altogether.

Worse still, there may be a temptation for a knee-jerk reaction to ERNIC/NMW hikes by reducing headcount to cut short-term expenses—often at the cost of long-term growth.

Retention and attraction of top talent is essential for profitable growth and serves as a strong risk mitigation measure.

Creating an environment and structure where staff feel empowered, valued, and aligned with the organization’s goals is a powerful driver of long-term sustainable growth and profitability.

Conversely, organizations with high staff turnover and weak workplace culture suffer from inefficiencies and the continual costs of training and retraining. Constantly
recruiting replacements, rather than adding new roles, drains resources and damages profitability.

A review of corporate structure and a holistic approach to talent acquisition and retention often creates opportunities to:

• Improve staff retention and strengthen existing staff, customer, and client relationships.
• Reduce recruitment and training costs.
• Minimise staff costs while simultaneously increasing take-home pay.
• Provide a flexible environment to better reward high-performing staff, improving workplace culture and inclusivity.
• Transition to a sustainable, fixed staffing cost model.
• Isolate the operating company from future employment law changes, mitigating risk.
• Remove legacy liabilities linked to employment law, eliminating “barriers to exit” for businesses looking to sell in the coming years.
• Maximise tax efficiency on sale.

An effective people strategy and structure deliver intangible value by boosting morale and productivity while also potentially generating significant cost and cash flow savings. These savings may far exceed the additional costs arising from ERNIC and NMW.

For a no-obligation discussion on how an Employment Structural Review could help your organization overcome imminent challenges and support long-term profitable growth, please contact your ERA Group Principal Consultant or reach out to Paul Gravatt at pgravatt@eragroup.com or +44 7860 780 770.

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