With the parameters of the Employment Rights Act 2025 now legally implemented across the UK, several changes have taken place that will have an effect on business costs and expenses.
Notably, there has been the introduction of day-one entitlement and the removal of the Lower Earnings Limit. Coupled with the National Minimum Wage Regulations 2026, these developments have resulted in significant changes for businesses. Many companies are now reporting that their largest expenses stem from labour costs, which is placing considerable pressure on them.
With rising employer costs in 2026, many businesses worry for their futures, but if you start to manage your finances and get a full understanding of your new financial commitments, you can make informed decisions regarding your business that help you better manage your finances.
If you don’t already, now is a crucial time to work with an accountant to help ensure your business’s financial health and put plans in place to adapt to new regulations.
At Tax Driven Accountants, we have seen firsthand the impact that not managing your finances can have on a business, so keep reading to find out how you can manage rising employer costs in 2026.
What’s Actually Changed: April 2026 Wage Increase
From the 1st of April, the government implemented a significant wage increase. Not familiar with the changes? Below, we have broken them down into an easy-to-understand table so you can understand the full picture of how wages have changed in the UK this year.
| Category | Percentage Increase | 2026 Minimum Rate |
| National Living Wage | 4.1% | £12.71 ph |
| 18-20 | 8.5% | £10.85 ph |
| 16-17 | 6% | £8 ph |
| Apprentice | 6% | £8 ph |
Though these pay increases are fair for workers, if you employ many workers in your business, your outgoing costs to pay these wages will increase significantly, which may put financial strain on your business.
To put this into perspective, if you hired 10 staff members on the National Living Wage, you’d be paying £10,400 extra on payroll, and that’s before National Insurance is even factored in.
With the pay gap between stations narrowing, many businesses are now required to increase the wages of executives and supervisors within the company.
Any business owner will know that managing your payroll already comes with complications, but with recent updates, these complications only appear as they will develop further, which is why now is the time to work with an experienced accountant who can help you keep track as these wage increases come into force.
The True Cost of Employing Someone in 2026
When people discuss the recent updates, the conversation seems to be isolated to just wage increases, but as you’ll know, hiring staff has costs far beyond wages.
National Insurance contributions, which is 15% of an employee’s earnings, Statutory Sick Pay from day one, enhanced family leave and pension contributions(around 3%) all add up.
Say you were paying someone a £30,000 salary, you’d have to pay an additional £3,750 on NIC and another £713 on employer pension, meaning that the cost to hire someone on £30,000 is actually closer to £34,463.
Consider that across staff, and you’re looking at a substantial cost increase. At Tax Driven Accountants, we offer a range of support services that provide advice on business finance, payroll and even pensions, so get in touch if you’d like some advice on keeping on top of these costs.
Fair Work Agency: Don’t Get Caught Out
On April 7th, the government launched the Fair Work Agency, a proactive enforcement body established to ensure compliance with new employment rights. This body can conduct unannounced checks, and if it discovers that your business isn’t currently implementing employment rights, you will face a penalty.
Compliance with new pay increases and employment rights is absolutely essential; if you do not take measures to ensure you are following new legislation, there will be consequences. This risk is another reason we always recommend working with an accountant, as they can ensure you remain compliant with your financial obligations.
Tax-Efficient Strategies to Offset the Pressure
Though businesses may be worried about piling costs, there are legal ways that you can reduce your tax burden so that you can reduce the overall costs that your business incurs. These methods include:
EMI Scheme Expansion
Enterprise Management Incentives is a government-approved scheme that allows businesses to grant their employees the right to buy shares at a pre-agreed price, rather than accepting a higher salary. This scheme is best suited to SMEs and gives your employees a stake in the business’s future success.
The purchase of these shares can be exercised at a later date and offers substantial financial and tax benefits to companies. When employees choose to exercise their options, companies can then claim a corporation tax deduction, and the deduction is generally equal to the difference between the market value of the shares at the time of exercise and the price the employees pay for them, which can significantly reduce the company’s taxable profits.
Pension Salary Sacrifice
Instead of an employee receiving their full salary and then paying into their pension from it, they can opt to take a lower salary, with the employer paying the difference directly into their pension. By reducing the overall salary, both parties pay less in National Insurance and save money, which they will then benefit from later in life.
This benefits businesses by enabling them to avoid raising an employee’s salary while still providing the employee with extra compensation for their efforts.
Tax-Efficient Benefits
Pay rises are taxed, but certain benefits can be offered that are tax-free or taxed at a much lower rate. Examples include: cycle-to-work schemes, electric car schemes, extra annual leave purchases, or health cash plans.
If there is a concern about inequality among staff due to recent changes to pay rates, but you cannot afford a full overhaul of wages, these schemes can be a good way to improve morale. However, do remember that you are still legally required to give pay rises in line with new legislation if your employees are on the National Living Wage or minimum wage.
If you do wish to use these schemes, we would advise working with a professional bookkeeper so that you can keep track of all the schemes you have in place and balance the books.
Reassess Trading Structure
If your current tax costs are proving difficult to sustain, it may be worthwhile to reassess your business’s legal structure. For instance, a sole trader could potentially save money by incorporating as a limited company, or a group of companies might gain advantages by reorganising the way profits are distributed among them. Choosing the appropriate structure can legally reduce liabilities such as corporation tax, income tax, or National Insurance contributions, often significantly.
How Tax Driven Accountants Can Help
Through this guide, we hope to have provided you with a better understanding of recent employee cost increases and guidance on how to manage them. Ultimately, the best way to ensure that you can manage these changes is with the support of an accountant.
At Tax Driven Accountants, we stay informed on the latest news in finance and keep track of all new legislation so that we are equipped to support all of our clients.
Need an extra hand with handling your business finances? Get in touch today.
