Consumer markets – from food and beverage to retail to travel, tourism and leisure – are under pressure as rising employment costs add to wider pressures. Navigating National Minimum Wage (NMW) and National Living Wage (NLW) regulation also poses significant challenges in a sector characterised by high turnover and complex pay structures. Failure to comply can result in penalties and reputational damage, making proactive compliance measures essential.
At the same time, many are struggling with talent acquisition and retention – in our June Business Outlook Tracker, 23% of businesses said it was a top challenge, while 62% reported job cuts. Despite this, 45% of businesses plan to increase investment in employee benefits – which, as outlined below, can improve retention, reduce turnover, and achieve cost savings.
Why are employment costs increasing?
Consumer sector employers face rising employment costs and this is being driven by several factors.
National Insurance Contributions (NICs) have gone up. From April 2025, employers’ NICs rose from 13.8% to 15%, with a lower threshold of £5,000 (down from £9,100).
National Minimum Wage rates are also higher. Rising by 6.7% last year alone, these have added over £1,500 annually for a full-time worker. Employers with large numbers of lower-paid staff must also manage compliance risks, including unrecorded working time such as time spent changing into uniforms before the start of a shift.
Continued freezes on income tax thresholds mean future pay rises for employees will likely result in higher tax burdens. This is turn increases demands for greater pay rises, unless employers can help relieve the pressure in other ways, such as through salary sacrifice schemes or discount portals.
To navigate these challenges, consumer sector employers need to manage compliance risks and optimise costs. Strategic reviews of employee benefits can help with this – reducing recruitment costs, fostering loyalty, and improving retention.
Range of compliance challenges across consumer sectors
Food and beverage (F&B)
The F&B sector faces unique NMW compliance challenges, particularly in food manufacturing. Employers must ensure that for:
- piece rates, workers are paid at least the NMW for all hours worked, regardless of output
- overtime and breaks, accurate tracking is in place to avoid inadvertent underpayment
- seasonal workforce – employers must ensure they undertake regular pay reviews, keep accurate time records and understand how to determine worker type to avoid unintentional NMW breaches .
Retail
Retail businesses face high turnover and variability in hours, which complicates NMW compliance. Key risks include:
- irregular schedules – ensuring all hours worked are recorded and paid at NMW rates
- salary sacrifice schemes – these benefits can unintentionally reduce pay below NMW thresholds
- uniform costs – contributions by employees for uniforms may lower pay below the NMW.
Travel, tourism and leisure (TTL)
The travel, tourism and leisure industry is also a people heavy sector with seasonal variances and irregular working hours, each subsector within TTL has its own risks including:
- Agencies and tour operators – compliance risks include commission-based pay and unpaid mandatory training time; seasonal workforces add further complexity
- Airlines – cabin crew and ground staff often work irregular hours, requiring meticulous tracking to ensure NMW compliance; uniform costs and overseas work also present risks
- Accommodation providers – overtime, breaks, tips, service charges and accommodation offsets are areas where non-compliance can occur
- Hospitality and leisure –have a high reliance on part-time and casual workers which increases risks, with common pitfalls including mismanagement of tips and unpaid work trials.
Avoiding penalties and enhancing NMW compliance
Since the National Minimum Wage was introduced in 1999, the Government has overseen the repayment of more than £194 million to almost 1.5 million workers, issued more than £105 million in financial penalties and completed over 95,000 investigations.
In the last two years (2022-2024) alone, NMW arrears of over £21 million have been identified by HMRC, highlighting a growing scrutiny and activity in this area, with further investment in NMW compliance expected in the coming years.
To mitigate risks, employers should:
- conduct regular internal audits of pay records and hours worked
- provide training for HR and payroll staff on NMW regulations
- implement clear pay policies for tips, service charges, and salary sacrifice schemes
- maintain accurate record-keeping to demonstrate compliance during HMRC audits
- seek advice from HMRC or professional advisors to address complex compliance issues.
How enhancing employee benefits can help
By enhancing benefits, businesses can reduce costs, improve morale and stand out as employers of choice in their sector, which can support both staff retention and acquisition. Here are three reasons to consider implementing an employee benefits review:
1 Salary sacrifice as a strategic tool to reduce costs
Salary sacrifice schemes allow employees to exchange a portion of their salary for non-cash benefits, such as pension contributions or electric vehicle leases. These schemes reduce payroll costs, save employees money and enhance employee retention. Care must be taken, however, to exclude employees who are earning close to the NMW, as participation could reduce their pay below statutory thresholds.
2 Restructuring existing benefits
Rising premiums for benefits such as private healthcare may make existing packages unsustainable. Employers can renegotiate terms, or restructure offerings, to maintain affordability. Employees may also welcome the changes, if it reduces any associated Benefits in Kind costs too. Transparent communication through Total Reward Statements helps employees understand the value of their benefits and builds trust.
3 Engaging employees through benefits
Investing in employee benefits creates a positive work culture and boosts engagement. In high-stress service roles in the consumer sector, benefits that support physical and mental wellbeing are particularly important. Key initiatives to consider include:
- wellbeing programmes – gym memberships, online GPs, mental health support, and wellness initiatives can reduce absenteeism and improve productivity
- career development – training and development opportunities demonstrate investment in employee growth.
- family-friendly policies – flexible work schedules and enhanced parental leave improve job satisfaction and retention.
Winning the talent game
Rising employment costs pose significant challenges for the consumer sector, but they also present an opportunity to reimagine employee benefits. Proactive investment in benefits can lead to a combination of direct tax savings and indirect savings from enhanced retention, reduced absences and improved productivity.
Ensuring compliance with NMW regulations is essential to avoid penalties and reputational damage. Regular audits, training and clear policies are critical to mitigating risks. Employers are encouraged to seek professional advice to navigate complex compliance requirements and enhance their workforce strategies. They may also seek support when facing HMRC investigations. For example, we helped a food manufacturing client facing potential liabilities exceeding £1 million due to clocking-in issues related to PPE-changing time. By providing evidence to HMRC, we successfully overturned the findings, avoiding arrears, penalties and being publicly ‘named and shamed’.
The sooner a strategy is put in place around NMW compliance and benefits, the sooner employers can manage risk and save money.
For further insight and guidance, contact Phil Cavill or Laurie Eggleston.
