The Autumn budget is rolling out in April 2025. With it comes the National Living Wage increase, impacting labour costs for restaurants up and down the country (that are already dealing with post-pandemic financial strain).
Here’s a breakdown of the new hourly rates:
- For employees over 21: +6.7% to £12.21
- For employees aged 18 to 20: +16.3% to £10.00
- For apprentices under 18: +18% to £7.55
And with labour costs already being such a huge expense, these increases make it even harder to balance revenue, profits, and labour spending.
So what’s the solution? How can you ensure that the minimum wage increase doesn’t cut into your profits and impact your bottom line?
Let’s find out.
In this article, we walk you through some practical solutions to mitigate rising labour costs. But first, let’s break down how these costs will impact your P&L.
How rising costs will impact on your restaurant P&L
Alongside the minimum wage increase, the new budget brings additional challenges for restaurant operators:
- Business rates relief reduction. Hospitality businesses have benefited from a 75% reduction in business rates since November 2023, capped at £110,000 per business. The relief is set to drop to 40% for 2025-26 from the 1st of April 2025, up to an £110,000 cap. With this decrease, research estimates that the average restaurant’s rates bill will rise from £5,051 to £12,122.
- National Insurance increase. Employer National Insurance (NI) contributions will rise to 15% in April 2025, an increase of 1.2% This increase will likely impact payroll expenses, with an expected 2-4% reduction in net profit margins.
- National Insurance Secondary Threshold increase. The Employer’s NI Secondary Threshold is also dropping, decreasing from £9,100 to £5,000. This means employers will pay NI on employee earnings above £417 per month instead of £758. Operators with part-time staff (which most have) may find costs increasing as a result.
All of these rising costs will strip nearly 25% off the average restaurant’s bottom line.
That’s right — 25%. 🤯
Picture this: Your restaurant turns over £700,000 annually. The combined impact of increased National Living Wage, National Insurance changes, and reduced business rates relief threaten to reduce your EBITDA from £105,000 to £78,960.
That’s the same as writing off a full quarter of profits. We don’t have to tell you that there isn’t anywhere close to 25% of wiggle room on net margins in hospitality (they’re already razor-thin as it is).
Here’s an example of how this would appear on your P&L statement (although actual P&Ls contain many more line items):
Let’s break it down even further.
Say that your £700k revenue restaurant has 30 employees. You currently pay £250,000 in labour costs (32% of revenue, which is typical for most restaurants).
Here’s how these labour costs will increase come April 2025:
- Additional Living Wage cost: £21,952
- Additional NI cost: £4,088
- New labour costs: £281,200 (35.7% of revenue)
That’s a 3.7% increase in labour costs. Now, 3.7% might not sound like a lot, but it is — especially when costs are going up in other areas of your business, too. It all adds up.
And the reduction in business rates relief from 75% to 40% creates another significant pressure on your P&L. For your £700k restaurant, this means your current rates bill (with the 75% relief) goes from £5,051 to £12,122 (with the 40% relief).
That’s an additional annual cost of £7,071.
This is just an example scenario, but the principle applies to everyone. Even if your restaurant makes more or less £700k, you’re still at risk. No matter what type or size of hospitality business you operate, these changes will impact you.
Key challenges for restaurants
When these higher costs come into the picture, what will the main challenges be for restaurants (aside from the obvious “keeping costs down”)?
Let’s take a look.
Maintaining service quality
Quality is one of the most important aspects of restaurant success. From how your food tastes to the front-of-house service, quality ensures that diners have the best possible experience. And when they enjoy themselves, they’re more likely to return or recommend you to others.
But when costs go up, quality is one of the things that can take a back seat. And it makes sense —operators are worried about other things (like keeping the business profitable), but it really is essential that quality stays top of your list.
Think about ingredients as an example. When costs go up, operators might look for cheaper alternatives. Instead of buying items from suppliers, they turn to supermarket chains like Tesco.
But there’s a reason supplier costs are higher than supermarkets. They typically provide better quality items, which is why the price is usually higher.
So making the switch to source ingredients from supermarkets might save some money, but at what cost? You save some money, but how will it impact the dining experience? Your brand reputation? Your online reviews?
Preserving profit margins
When costs are rising across the board, your profit margins will take a hit if you don’t put preventative measures in place now.
Let’s use labour costs as an example. Come April, they’re increasing — there’s no way to change that. But what you can change is how these rising costs impact your margins.
Making changes across your business will reduce the impact on your bottom line. For example, improving your inventory management to minimise waste and only order items you actually need. Or optimising your menu prices to increase profits.
We take a look at some of these tactics in more detail later, so stick around.
Impact on scheduling and rota planning
When rising labour costs are on the horizon, your initial knee-jerk reaction might be to cut these costs by scheduling less staff.
Trust us, you don’t want to do this.
Yes, you’ll see a short-term financial gain by spending less on wages — but what’s the real cost? A bad dining experience because staff are rushed off their feet? Damage to morale and high employee turnover?
Kallie Kocourek, Vice President of the UK Market at Roasting Plant Coffee, talks about this in our recent webinar “UK Budget 2024 using data to deploy labour and offset cost increases”
The long game is much more efficient, which means optimising your schedules to reduce labour costs without negatively impacting the customer and employee experience.
How to mitigate the impact of the minimum wage increase
Okay, enough dwelling on the downsides. Let’s flip the narrative and take a look at some of the ways you can protect your profits from the upcoming budget.
Optimise labour deployment
Thoughtful scheduling doesn’t just improve operations — it can save your business 1-2% of costs, enough to offset rising expenses and protect your bottom line.
And with the minimum wage increase coming thick and fast, saving 1-2% of your labour costs is exactly what you need right now.
Most operators probably are doing a relatively good job of optimising labour schedules. They bring in more people during busy periods and schedule less when it’s quiet. Is there more to it than that?
In short, yes.
Scheduling staff with data-backed schedules ensures you really are optimising rotas for the best results — not just based on gut feel.
To make this process even easier, use restaurant technology to do the heavy lifting.
Take a look at Nory as an example. By analysing historical sales data, our AI-powered software creates optimal schedules for each of your venues, factoring in costs like pensions, National Insurance (NI), and your ideal labour cost percentages.
The result? Efficient staffing, consistent customer experiences, and noticeable savings.
In the budget webinar, Kallie Kocourek talks about the value of using technology (like Nory) to optimise labour across locations.
Nory success story 🥳 Find out how Roasting Plant Coffee reduced labour costs by 18% in just two months by using Nory, which is a huge deal for their bottom line.
“I can see where our general managers are saving a huge amount of time making their rotas. It frees up their time to focus on other crucial aspects of their role.” – Kallie Kocourek, Vice President of the UK Market.
Monitor covers per labour hour (CPLH)
Most restaurant operators don’t know or track their CPLH, and they’re really missing a trick. Why? Because it can save you a lot of money.
Covers per labour hour measures how many guests (or “covers”) you serve for every hour of staff labour. It’s a labour productivity metric that evaluates the efficiency of labour usage in relation to the number of customers you serve.
You can have the same number of staff and the same cost of labour, but drastically different productivity levels — and this can impact your profits. A higher CPLH means your restaurant is serving more guests with fewer labour hours, indicating efficient staffing.
So how do you monitor CPLH?
You can figure it out using this calculation:
Total labor hours worked / Total covers (guests served) = Covers per labor hour (CPLH)
But the challenge is accessing this data in the first place. This is where a restaurant operating system like Nory can help. Our latest algorithm measures your real-time performance to calculate CPLH. Then, we make suggestions for optimal scheduling and productivity. 🎉
Prioritise your people to increase retention
Providing employees with the tools, skills, and support they need to thrive not only creates a more efficient operation, but also boosts retention. And did you know that companies with strong learning cultures see higher rates of retention? Studies prove it.
Increasing retention is a great way to improve your bottom line. How? By running a more efficient operation.
When employees are confident in their roles, things run smoother, allowing you to run a more efficient and productive operation. When staff can be more productive, you can increase table turnover and covers per labour hour — both of which help you generate more revenue.
Not to mention, there’s a connection between employee satisfaction and restaurant success. This study found that happier workers are 12% more productive than their unhappy counterparts.
Kallie discusses the value of investing in people in the Autumn Budget Webinar, using the younger workforce as an example.
More restaurants are hiring younger employees, most of which are used to using mobile phones. Enhance their experience by providing things like onboarding or training on an app, or allowing them to access schedules and payroll on mobile.
Food for thought 🤔 We know that it’s scary to invest in your people and hope that it pays off. But the good news is that you can track your efforts in systems like Nory. Monitor customer feedback, sales, upsells, productivity — anything that indicates employee performance.
Implement technology to make informed cost-cutting decisions
Protecting your profits from the rising costs comes down to marginal gains. You need to create a more efficient operation to optimise spending in all areas of your business if you want to counteract the cost of labour.
But it can be tricky to keep a close eye on marginal gains — especially if you don’t have real-time insight into your performance. You often need to make fast and reactive decisions to get the best results.
This is where technology can help. With the right system, you can pinpoint where to cut costs, boost margins, and enhance operational efficiency in real-time. Take a look at Nory as an example. With our AI-powered software, you can:
- Improve your inventory management. Overordering is a common problem for a lot of restaurants, and it bleeds your profits. Effective inventory management prevents this, making sure you only order items you need, when you need them. With Nory, for example, you can use AI-powered demand-based ordering. This means we predict what ingredients you’ll need to meet customer demand. As a result, you spend less money on ingredients that go to waste and your profits go up.
- Track supplier costs. A system like Nory allows you to track supplier costs in real-time. If anything changes, you can spot it instantly and step in to renegotiate, source new suppliers, and bring costs down. Take a look at Rocksalt as an example. Using Nory’s integrated supplier management features, the business accurately tracks prices and supplier costs, allowing them to make instant changes to optimise spending.
- Optimise menu prices. With our real-time data, you can track your most popular menu items (and the profit margins on these items). This tells you which items people prefer, meaning you can optimise your menu accordingly.
- Manage margins in real-time. Inflation has driven margins to their leanest state ever, making daily margin management essential. With real-time data access, Nory helps you track performance and spot opportunities for improvement.
- Reduce costs without impacting the customer experience. Customers are more price-sensitive than ever. Nory helps you improve backend efficiency to mitigate the financial impact on customers. For example, improving labour schedules and optimising supply chain costs to keep profits healthy without boosting menu prices and sacrificing their experience. Result.
Curious to see these features in action? Take a product tour for the full lowdown.
Nory success story 🥳 See how CUPP uses Nory’s simple and intuitive system to increase sales forecast accuracy by 99%, allowing the business to make smarter and more informed decisions to optimise spending and reduce costs.
“Nory CPU has streamlined how our franchisees and stores order to us and how we get information back to them. If things are out of stock or if we need to update something, it’s quick and easy to do it.” – Paul Tanner, Managing Director at CUPP
Food for thought 🤔 If you’re worried about AI replacing the need for people in hospitality, don’t be. AI helps you optimise your schedules and cut costs to improve your bottom line, but it shouldn’t replace the nuance of humans.
The way we see it, AI Where it really adds value is in supporting your existing processes and making data-driven decisions that improve efficiency and profitability.
Find out more about how we use AI to enhance restaurant operations.
Prepare your restaurant for the upcoming budget with Nory
Labour costs have always been high for restaurants, and National Minimum Wage isn’t a new concept for us. But this time, the rising labour costs are combined with all the other elements of the budget.
It’s a lot to take in, and it’s going to have a big impact for all restaurant operators.
Take preventative measures now to protect your business when the changes come into effect. Optimise your menus, make marginal gains, and create an efficient operation to put yourself in the best possible position ahead of April 2025.
