Post-Pandemic Payroll Pressures: Navigating the Cost of Living Crisis with Rothstone

 

Context & Why It Matters

As the UK wrestles with the lingering effects of the pandemic and soaring inflation, many businesses are facing intense pressure to manage wage increases, deal with National Insurance changes, and assist employees amid the cost of living crisis. With staff expecting pay support and energy bills eating into profits, ensuring the bottom line doesn’t collapse is a real worry.

Why Payroll Feels Heavier Than Ever

If you run a business in the UK right now, you’ve probably felt it: payroll is getting more expensive and more complicated. After the pandemic, the government introduced reliefs and support schemes like furlough to keep businesses afloat. Fast forward to 2025, and businesses are no longer cushioned. Instead, they’re wrestling with:

• The cost-of-living crisis, which has employees demanding pay rises.

• National Minimum Wage (NMW) and National Living Wage (NLW) increases, which add to wage bills.

• National Insurance (NI) contribution changes, which affect both employers and employees.

• Inflation, which drives up operating costs at the same time as wages.

For many SMEs, payroll has become one of the single biggest risks to financial stability. At Rothstone Accountants, we’ve seen first-hand how even modest pay changes can ripple across cashflow, tax obligations, and profitability.

The Current Payroll Challenge

Let’s look at the numbers. According to ONS data, wage growth has outpaced inflation in some months but remains patchy across industries. Meanwhile, the government has mandated consistent NLW increases.

📊 Table 1: Wage Growth vs Inflation in the UK (2022–2025)

What does this mean for businesses?

• Staff expect pay rises every year, but businesses don’t always see equivalent revenue growth.

• SMEs with thin margins find wage growth especially destabilising.

• Payroll isn’t just salaries—employer NI, pensions, holiday pay, and sick pay all increase proportionally.

 

Why Payroll Management Is Make-or-Break

Payroll isn’t just a line on the P&L—it’s tied to business health.

1. Cashflow strain – Monthly payroll often accounts for 40–70% of an SME’s outgoings. Unexpected NI changes can throw budgets into chaos.

2. Retention & morale – In a cost-of-living crisis, if staff don’t feel supported, they leave. Recruitment costs (often 20–30% of annual salary) hit even harder.

3. Compliance risks – HMRC penalties for late RTI submissions, errors in NI, or underpayment of wages can compound financial pressure.

📌 Example from the field:
A construction client we advised had 25 employees. Wage increases of just 6% across the board added £72,000 annually to their payroll bill. Without adjustments to pricing and contracts, their profit margin would have evaporated. With Rothstone’s forecasting tools, we helped them restructure benefits and renegotiate contracts—keeping them sustainable.

 

The Accountant’s Role

At Rothstone, we believe payroll isn’t just compliance—it’s strategy. Here’s how accountants should (and we do) support businesses:

1. Cashflow Forecasting

We model payroll’s impact month by month, factoring in NI changes, pensions, bonuses, and holiday pay. This ensures businesses never get caught short.

2. NI and Tax Efficiency

Employer NI is often overlooked. We analyse whether salary sacrifice schemes, pension adjustments, or employee benefit packages can reduce liabilities.

3. Structuring Employee Benefits

It’s not always about higher pay. Perks like:

• Cycle-to-work schemes

• Health insurance contributions

• Childcare vouchers
  …can provide employees with value while keeping costs efficient for employers.

4. Compliance & Accuracy

From RTI submissions to auto-enrolment pension rules, payroll compliance is an HMRC minefield. We handle the details so owners can focus on growth.

5. Scenario Planning

We test “what if” scenarios—what if wage growth hits 8%? What if the Chancellor changes NI thresholds again? By running these simulations, our clients are never caught off-guard.

✔️ Checklist: 5 Payroll Actions Every SME Should Take in 2025

Review salary structures against industry benchmarks.

Forecast payroll costs for the next 18 months.

Audit employee benefits for tax efficiency.

Automate payroll processing to reduce errors.

Consult with accountants on NI planning and compliance.

 

How Rothstone Supports Clients

At Rothstone Accountants, payroll is a key advisory service. We go beyond payslips:

• Dedicated payroll teams: Processing weekly or monthly payroll, ensuring HMRC compliance.

• Strategic advisory: Helping business owners decide how much they can afford to pay staff without jeopardising growth.

• Cashflow tools: Interactive dashboards that show real-time payroll impact on your business finances.

• Industry-specific support: Whether you’re in construction, healthcare, retail, or tech, we understand sector-specific payroll challenges (like CIS deductions in construction).

• Human support: When tough conversations about pay arise, we’re there to back up owners with facts and forecasts.

📌 Case Study: Retail Client
A retail chain with 12 employees faced soaring energy bills and simultaneous wage demands. By working with Rothstone, we:

• Modelled different wage scenarios.

• Recommended a mix of modest salary increases and non-cash perks.

• Reduced NI liability by implementing a salary sacrifice pension scheme.
  Outcome: The business saved £18,000 annually and retained all staff.

Payroll as Strategy, Not Admin

Payroll is no longer a back-office task. It’s front-line strategy in the fight for business survival.

For SMEs, the cost-of-living crisis and post-pandemic pressures mean payroll decisions determine whether you thrive or barely survive. At Rothstone Accountants, we help clients turn payroll from a burden into a strategic tool—balancing compliance, staff retention, and financial health.

📞 If payroll is keeping you up at night, Rothstone is here to bring clarity, compliance, and calm.