The Autumn Budget is now less than two months away, falling on 28 October 2026. As business owners anxiously await the proposed tax changes, employees tend to be waiting to see if there will be any changes to their living wage base pay.
While employees may be celebrating an increase in pay, business owners need to understand how the rumoured rise in the National Living Wage (NLW) may affect their business.
What could a rise in the National Living Wage mean for my business?
Every year, the Low Pay Commission advises the government on what the NLW should be, which is then factored into the NLW that is announced in the budget.
When the NLW increases, employees rejoice at the chance to have a little more financial wiggle room in the face of the cost of living crisis.
However, for employers, an increase in the living wage can lead to an array of financial struggles.
A higher wage bill can significantly increase the costs for businesses that hire entry-level workers. Pushing those employees into a higher salary in sectors like retail and hospitality means that payroll costs increase and those jobs become harder to come by.
There can also be considerations around pay compression for higher earners within a company.
Businesses often have to raise the pay for their workers who earn above the living wage to maintain pay gaps between different levels of experience and roles.
Oftentimes, a rise in NLW leads to a reduction in profitability for businesses, particularly SMEs, as they tend to have to absorb the costs internally if they are unable to cut other costs easily.
While it may seem negative, there are some positives when considerations fall to employees.
Higher pay for employees can boost morale in the workplace and reduce higher turnover rates. This, in turn, saves the money that is needed when hiring and training new employees.
What can businesses do to prepare for a change in the National Living Wage?
While businesses will not know the details of any changes until the Budget, there are steps that businesses can take to understand how an increase could affect their finances.
Some of these include:
- Review payroll processes – Businesses should look at their workforce to see who could be impacted by an increase. This could be people earning the living wage or close to the living wage. You may also want to factor in the additional costs that are associated with wage increases, like National Insurance contributions and pension contributions.
- Pricing reviews – If you expect that your business will be impacted by a rise in employment costs, you may need to review your pricing structures. Failing to account for costs could place pressure on profit margins.
- Cash flow forecasting – Rather than waiting until new rates come into effect, businesses can model scenarios and assess how changes to the NLW will affect cash flow and profitability.
- Keeping an eye on the Budget – One of the most important things to do is to stay informed. Once changes are announced, you will need to understand which employees are affected and how this would impact payroll costs.
For businesses that are operating on tighter margins, planning is essential to absorbing a potential increase comfortably and facing an unexpected squeeze on cash flow.
Accountants supporting your business
While there is still uncertainty around what the Autumn Budget will bring, businesses do not need to wait for the announcement before reviewing their finances.
Understanding your current payroll costs, reviewing your pricing and forecasting different scenarios can help you prepare for a potential increase in the NLW.
If you are concerned about how changes to the National Living Wage could affect your business, speaking to your accountant before the Budget can help you understand the potential impact and plan accordingly.
For support with the Autumn Budget, get in touch with our team!
