The cost of employing low-wage workers is set to hit a record high in 2025, according to new analysis.

Businesses employing low-wage workers will see their tax bills soar, the Centre for Policy Studies (CPS) has warned, after research found the rise in employer’s national insurance contributions (NICs) led to a 60 per cent tax increase for firms employing the lowest paid. 

Following the Chancellor’s October Budget, the CPS says that this year a firm employing a full-time worker on minimum wage will have to pay £2,538 in NICs, versus £1,617 in 2024.

In total, alongside the minimum wage increase, it will cost companies £2,367 more to employ one full-time worker on the minimum wage than it did in 2024, the think tank added.

CPS director Robert Colvile said: “Labour claims to understand the importance of growth and to have made it a priority. But it was clear from the moment of the Budget that taxing jobs and work would damage the economy. 

“As this analysis shows, the changes to employer’s NICs and the increases in the minimum wage make it disproportionately more expensive to employ those at the lower end of the wage scale.”

And Daniel Herring, CPS tax and fiscal researcher, added: “The more of an employee’s salary is owed in tax – whether paid by the employee or directly by the employer – the more costly it is for businesses to create and sustain jobs.

“Increasing taxes on employment harms businesses and workers alike. By making it more expensive to employ people, the hikes in employer’s NICs disproportionately affect the lowest paid or those looking to move back into work after being economically inactive.”

The CPS report, titled ‘Punching Down: How Labour’s jobs tax hits the lowest-paid the most’, warns that 2025 will be the most expensive on record for firms employing low-paid staff.

While the so-called ‘tax wedge’ – the combined amount of tax paid by employees and employers – for those on minimum wage will equate to 21.3 per cent of salary in 2025.

The Treasury and the Department for Business and Trade (DBT) have been approached for comment.