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NICs and zero-hour contracts | How to ready your hospitality business for employment reforms
Written by Jane Hallas on 19 November 2024
The hospitality sector is facing significant challenges following the recent Autumn Budget. The rise in employers’ National Insurance contributions (NICs) and a reduced contribution threshold are set to impact businesses and employees nationwide – and for employers in the hospitality industry, where margins are often tight and staffing structures complex, this will be particularly concerning.
On top of this, the forthcoming changes to zero-hour contracts promised under the Employment Rights Bill will also hit the hospitality sector hard.
Here’s what you need to know and how to prepare.
The changes at a glance
From April 2025:
- The employer NIC rate will rise from 13.8% to 15%.
- The contribution threshold will be lowered from £9,100 to £5,000 per employee annually.
While these changes aim to raise £25 billion annually to fund public services, including the NHS, hospitality leaders have warned that the financial burden could lead to widespread job losses, reduced hours, and business closures.
In addition, under the Employment Rights Bill, employers will have a duty to offer a guaranteed hours contract to qualifying workers that reflects the hours they regularly work over a reference period. This reference period is yet to be determined but is expected to be 12 weeks.
Employers will be also required to give workers reasonable notice of shifts and reasonable notice of any cancellations or changes to a shift. What’s more, workers will be entitled to compensation if their shift is cancelled, moved or curtailed at short notice.
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Why hospitality is uniquely affected
The hospitality sector is disproportionately impacted by these changes due to a number of factors, namely:
- Labour-intensive operations: High staff-to-revenue ratios make NIC increases more costly. Many hospitality businesses use zero-hours or low-hours contracts to ensure flexibility to meet peaks and troughs of demand.
- Lower average wages: Many hospitality employees earn below or just above the new threshold, meaning businesses will pay NICs on more earnings than before.
- Limited pricing power: Passing costs onto customers is less feasible in a highly competitive market.
Key concerns raised by industry leaders
In an open letter to the government, over 200 hospitality businesses and organisations, including UKHospitality and leading chains like Premier Inn and Fuller’s, warned that the rise in NICs is “unsustainable” for businesses.
The letter outlined a number of concerns, including the fact that higher NIC costs could lead to workforce reductions, which would disproportionately affect lower-paid employees and those on flexible contracts. Businesses may also delay expansion or refurbishments, stifling growth.
Changes to zero-hour contracts will also significantly impact the hospitality sector by limiting the flexibility that both employers and workers rely on. These contracts are essential for businesses with fluctuating demand, allowing them to adjust staffing levels quickly, while also providing workers with adaptable hours.
Restrictions or changes to these contracts would make it harder for businesses to manage operational costs and maintain efficient staffing, potentially leading to understaffing or overstaffing.
What can employers do to prepare?
There are a number of steps hospitality sector employers can take to ready themselves for, and reduce the impact of, these changes.
Review employment contracts and working practices
Review current working arrangements and hours ready for the forthcoming changes. Once further details are forthcoming under the Employment Rights Bill, contracts will need to be reviewed and updated.
Consult and communicate
If restructuring or redundancies are unavoidable, engage in meaningful consultation with affected employees. Clear, empathetic communication is critical to maintaining trust and minimising disruption. It’s also important to ensure a legally compliant process is followed to avoid the risk of successful claims being brought.
Conduct workforce planning
Carry out a workforce audit to identify roles or functions that can be streamlined. Avoid discriminatory practices in decision-making by ensuring that the criteria for any changes are objective and justifiable.
Offer training and redeployment
Consider retraining opportunities for employees whose roles may be at risk to help transition them into other vacancies within the businesses. This will help support retention at a time when there is a shortage of workers.
Understand your obligations and stay informed
Keep abreast of legal obligations regarding redundancy, consultation periods, and notice requirements. If applicable, ensure compliance with collective consultation rules for mass redundancies and ensure that you are ready for the forthcoming changes in this area under the Employment Rights Bill.
Support employee wellbeing
Introduce or enhance mental health and wellbeing support to help staff navigate uncertainties. This can help reduce turnover and maintain productivity.
By taking these steps, employers in the hospitality sector can navigate the challenges posed by NIC and Employment Rights Bill changes while minimising legal risks and maintaining workforce stability.
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Navigating these changes can be complex. For tailored advice on adapting to new NIC regulations and preparing your hospitality business for upcoming employment reforms, call 0345 226 8393 or request a callback from one of our experts below. We’re here to support you in ensuring compliance and optimising your HR strategies during turbulent times.
