The Chancellor’s Budget sets out a clear direction: the cost of employing people is rising, the tax landscape is shifting, and businesses will need to adapt quickly.

For SMEs, these changes will influence how you hire, reward and retain your people over the coming year. At the same time, this environment creates an opportunity to strengthen your workforce planning — with the support of HR experts who can help you manage costs, remain compliant and keep your teams engaged through change.

Below, HRi summarises the key updates affecting employers and how an HR consultant can help you respond effectively.

 

1. Employment costs are increasing — especially through National Insurance changes

Although today’s Budget did not introduce new National Insurance (NI) measures, it confirmed that previously legislated employer NI changes will continue.

Two elements now shaping labour costs are:

• Employer NICs remain at 15%
  This higher rate took effect in April 2025 and remains unchanged in today’s Budget.
• Employer NIC threshold now starts at around £5,000
  Since April 2025, employers begin paying NICs when an employee earns just over £5,000 per year, previously around £9,100.

What this means for your business:

• More employees — particularly part-time, entry-level and lower-paid roles — now attract employer NICs.
• Staffing budgets may already be under pressure, and today’s Budget will not ease those cost pressures.
• Recruitment and workforce plans may need to be reconsidered to remain financially sustainable.

How HR consultants can help:

• Model the real-year and forward-year impact on labour costs.
• Review hiring plans and organisational structure with cost efficiency in mind.
• Support decisions about role design, hours and workforce mix to maintain service levels.

 

2. Salary-sacrifice pensions: NI advantage is being capped, not removed

The Budget introduced one of the most significant future changes to employee benefits.

What’s changing:

From April 2029, salary-sacrificed pension contributions will retain their NI advantage up to the first £2,000 per year.
However, any contributions above £2,000 will no longer receive NI exemptions and will instead be subject to employer and employee NI.

This change mainly affects higher earners and employers offering more generous sacrifice arrangements.

What this means for SMEs:

• Salary sacrifice remains beneficial for most employees, but becomes less favourable for larger pension contributions.
• Reward packages and pension arrangements may need reviewing ahead of the 2029 implementation.
• Employee communication will be important to ensure clarity and reassurance as the change approaches.

How HR consultants can help:

• Evaluate whether salary sacrifice continues to work effectively for different groups of employees.
• Guide a wider review of benefits and reward to keep packages competitive and cost-effective.
• Develop clear communication plans so employees understand the implications.

 

3. National Living Wage increases add further payroll pressure

Today’s Budget confirmed another rise in the National Living Wage from April 2026. This will create additional payroll pressure, particularly for SMEs in margin-sensitive sectors such as care, retail, hospitality, and services.

Combined with the employer NIC changes already in place, and future adjustments to pension NI rules, employment costs will continue to rise.

What SMEs should consider:

• Review pay rates well ahead of April 2026 to ensure compliance and accurate budgeting.
• Protect internal pay differentials (e.g., supervisors vs. entry-level roles) to avoid compression issues.
• Forecast payroll for 12–18 months to understand the full impact on the business.

How HR consultants can help:

• Conduct pay structure and benchmarking reviews.
• Confirm NLW/NMW compliance based on upcoming statutory changes.
• Model workforce planning scenarios to manage cost pressures effectively.

 

4. Business-rates support offers some relief — but planning still matters

The government introduced multi-year business-rates support for over 750,000 properties, particularly in retail, hospitality and leisure. This may help offset some operational costs.

While this does not directly affect staffing costs, it can ease wider financial pressures.

How this can support your workforce plans:

• Greater stability around non-pay costs can help protect headcount.
• Recruitment and development plans may be revisited with more confidence.
• Savings could be used to support retention, training or reorganisation projects.

How HR consultants can help:

• Prioritise people initiatives with the highest return on investment.
• Identify capability or training uplift opportunities that support productivity.
• Help you use this financial breathing space strategically, not reactively.

 

5. Tax changes for owner-managers may influence remuneration decisions

The Budget included increases to taxes on:

• Dividends
• Property income
• Savings and investment returns

For many SME owner-managers who pay themselves partly via dividends, these changes may influence remuneration choices or growth plans.

How HR consultants can help:

• Review director reward structures from a governance and people perspective.
• Align remuneration with organisational goals, transparency expectations and long-term planning.
• Support succession planning and the recruitment of senior roles.

 

6. Productivity and efficiency are national priorities — and HR plays a central role

The Budget places productivity, skills and workforce efficiency at the core of the UK’s economic strategy. For SMEs, this is a chance to modernise and future-proof ways of working.

Areas where HR expertise is crucial:

• Workforce redesign and future staffing models
• AI-enabled process improvement (done ethically and safely)
• Skills development and capability planning
• Performance and engagement frameworks
• Culture-building to support continuous improvement

In a higher-cost employment environment, productivity gains are essential — and HR expertise is key to achieving them.

What SMEs should do next

1. Review your staffing budget and organisational structure for 2025/26
   Factor in NICs, NLW increases and upcoming pension reforms.
2. Reassess salary-sacrifice pensions and wider reward packages
   Adjust benefit offerings and plan employee communications well ahead of 2029.
3. Ensure April 2026 pay rates meet all legal requirements
   Compliance is essential; pay audits prevent risk.
4. Start workforce planning early
   Rising employment costs mean proactive planning is more important than ever.
5. Work with an HR consultant to navigate the changes confidently
   The Budget’s people-related measures are complex. Specialist HR guidance ensures you make informed, strategic decisions.

 

We’re here to help

If you’d like support understanding how these Budget changes affect your people strategy, payroll or workforce structure, an independent accredited HRi Certified^® consultant can:

• model workforce costs and hiring scenarios
• review pay structures and benefits
• ensure compliance with minimum wage and employment law
• help redesign reward packages to stay competitive
• guide productivity and organisational change initiatives

The earlier you start planning, the more flexibility you retain.
HRi members are ready to support you in navigating these changes confidently and sustainably.

Author: Mary Asante | HRi