ALMOST half of Scotland’s mid-market businesses have frozen salaries or stopped pay rises due to Labour’s changes to tax and wages, a poll has found.
The survey of 500 firms by BDO Global reported that 44% of Scottish mid-market companies had taken action on pay since the October Budget to prepare for the increase in both employers’ National Insurance Contributions and the National Minimum Wage (NMW).
A mid-market business describes one which is larger than a typical small and medium-sized enterprise (SME) but smaller than a large corporation.
BDO further reported that their survey of 500 firms in this category had found that two-fifths (40%) have chosen to use contract workers instead of recruiting, with 34% imposing a full recruitment ban.
A further two-fifths of Scottish businesses reported (40%) having chosen an alternative route by introducing or enhancing salary sacrifice schemes, such as in relation to pensions.
According to the BDO survey, 32% of businesses in Scotland are exploring new awards schemes to improve employee engagement, with more than a third (38%) looking at flexible working and 42% planning to introduce wellbeing programmes.
James Paterson, a tax partner at BDO in Scotland, said: “The increases to employers’ National Insurance Contributions announced at the Budget, and the accompanying drop in the threshold at which NIC applies to employee earnings, have clearly forced many businesses in Scotland to take drastic action, freezing salaries and delaying pay rises, while also imposing full recruitment bans.
“As our previous Economic Engine surveys have shown us, Scottish businesses are keen to explore other options, as a way of mitigating cost increases, whilst also helping to retain and motivate staff.
“Wellbeing, training, flexible working and award schemes rank highly, as business leaders try to think outside of the box when it comes to balancing two important factors – finances and people.”
Chancellor Rachel Reeves announced in her October Budget that employer contributions to National Insurance would rise by 1.2% to 15%, while the threshold at which it is paid has also been reduced. The changes came into effect on April 6.
The National Living Wage (for those aged 21 and over) also increased, rising by 6.7% to reach £12.21 per hour. Meanwhile, the NMW rates for those aged 18-20 increased by 16.3% to £10 per hour, whilst under 18s are now entitled to £7.55, up 18%.
It comes as Scottish shortbread band Dean’s of Huntly reported an annual loss despite boosting turnover from £8.3m to £10.2m.
Wages and other employee costs rose to £3.5m from £2.9m, even though the payroll was slightly lower at 143 against 149.
The firm said that the continuing impact of high energy costs and the rise in National Insurance contributions would put “further pressure on margins”.
In the charity sector, Epilepsy Scotland has warned that the National Insurance rise was a factor in its decision to cut a “crucial” support group.
