This flew under most radars, but we underestimate the changes to FRS 102 in January at our peril.

The changes are significant and poor lease accounting can have serious repercussions. This includes possible audit failures, inaccuracies, poor financial decisions, covenant violations, reputational risk and inefficiencies that harm the business.

So, what progress are companies making to meet this challenge? Just as importantly, what should they do between now and January?

What happens to leases under FRS 102 from January 2026? A little reminder…

Changes to FRS 102 will transform the way businesses in the UK and Republic of Ireland deal with leases. The aim is to further align reporting with the international accounting standard IFRS 16.

This will affect most leases, impacting approximately 3.4 million businesses in the process.

The biggest change is that almost all leases must be reflected on the balance sheet both as right-of-use assets and lease obligations. Linear rental costs will be a thing of the past. Instead, reporting will be more complex. Companies will now record depreciation on leased assets and interest on lease liabilities – this means we can expect the income statements to be similar. very different.

The effect of this change on your business metrics

What you report to stakeholders will change.

Your EBITDA will likely increase. Indeed, rental costs, which will be reclassified as depreciation and interest, will not be taken into account in this calculation.

On the other hand, declared net debt will increase with the addition of rental debts.

Understand exactly where we are with FRS 102 and what needs to be done

If you want eye-opening insights and expert commentary, the best place to attend was our recent webinar (watch it on demand here).

Called Compliance with lease accounting FRS 102 and beyondI was lucky enough to be joined by:

• Sarah Hughes, accounting consulting partner, CFO Solutions, Grant Thornton United Kingdom
• Fran de Gioia​, Lease Accounting Solutions Specialist, Office of the CFO, IRIS software​ Group

In this webinar we established:

• How many finance professionals have started adapting lease accounting in accordance with amended FRS 102
• What are the wider impacts for businesses
• The importance of controlling stakeholder expectations
• Hidden problems caused by the new FRS 102
• The possible opportunities that the changes bring
• Why spreadsheets don’t cut it

The bottom line: With very little time, most businesses failed to prepare

During the webinar, we asked nearly 200 finance professionals if they had started preparing for the new FRS 102 amendments. Of those who responded, only 3% had fully implemented the changes.

About 41% had not started, and 38% were in the early stages.

So what should they 79% Are financial specialists preparing?

What are the wider impacts of the FRS 102 changes for your business?

Earlier we saw how changes to FRS 102 will affect your metrics from 2026. This means possible consequences for debt covenants and bonus schemes that rely on these figures. This also means that early engagement with lenders and HR teams is essential. if you want to avoid unexpected violations or disputes.

It’s a major change, which means you need to adjust your expectations

The changes will test your company’s change management skills. First, teams will need to work together on leases like never before. Finance, IT, procurement, and operations must work together to identify all leases and update systems. They must also ensure that their judgments and estimates are consistent.

During our webinar, Grant Thornton’s Sarah Hughes said: “The changes are far-reaching. You need to consider whether you actually have a lease. You need to put systems in place to enable you to comply with the standard, and you need to start thinking about all those judgments and estimates that you just haven’t had to think about in the past.”

At the same time, good communication with stakeholders will make a huge difference. Investors, lenders and internal teams will need to know why the numbers presented to them will be different.

Fran De Gioia of IRIS Software Group said: “Engage early with your lenders and manage your investor narrative. The data you are forced to extract for compliance reasons is your best tool for managing market perception.”

Why Lease Changes Will Cause More Accounting Work

It is important to anticipate change, and this is one of the key lessons learned from adopting IFRS 16. Sarah Hughes said: “The situation with FRS 102 is very, very similar – it’s about starting early. It is so important that you do not underestimate how difficult it is to get the information you need. It’s not as easy as it seems.

Finance teams should remain on the ground once they have adapted to the updated standard. Changes to the terms, payments or scope of the lease – often due to renegotiation, termination or restructuring – require careful consideration to decide whether you count the resulting agreement as a new lease or adjust an existing lease. How these changes are recorded depends on their nature, and misclassification can cause you compliance issues.

The new devil in the details – services and leases

One challenge will be identifying hidden leases in service contracts. If a contract names an asset, gives control over its use and conveys its benefits, it can be considered a lease – for example the purchase of electricity from a dedicated solar farm.

This problem can also happen the other way around: many contracts combine asset leasing with services like maintenance or support.

Do not treat each part separately will have consequences because your reports will not be accurate.

What listeners will want

Listeners will have high expectations. They will want a clear written record of accounting policies, judgments and estimates. They will also want to see how leases were identified and recorded.

Grant Thornton’s Sarah Hughes said: “Auditors will review documentation relating to significant accounting policies and key judgments you have made. They will look for consistent application across companies and groups.”

“So it’s very important to standardize the process and the data points.”

How to seize an opportunity: the strategic advantage of changes to FRS 102

This amended accounting standard comes with some good news.

Because you consolidate all leasing information across properties, fleet, IT, and other assets, you’ll gain better visibility into your company’s leasing obligations.

In our webinar survey, 42% of financial professionals considered this to be the biggest gain of the changes to FRS 102.

This enthusiasm for better data makes perfect sense. This means you can develop more effective sourcing strategies. You’ll be able to approach suppliers with a complete view of rental expenses, negotiate better terms, and avoid costly defaults or automatic renewals.

There is a good chance that your managers will thank you too. All of this data allows leaders to make informed decisions when it comes to strategic planning.

Of course, this only seems likely if you have the right tools.

Why financial professionals seem to be moving away from spreadsheets

We spoke with financial professionals earlier in 2025, and now – much closer to the January 2026 changes.

One thing became clear: dedicated software is now the rising star. A much larger proportion of respondents (now 40%) think this is the way to go. These tools automate complex FRS 102 calculations, such as present value, expense splitting and dual-track accounting.

This is not the first time we have seen this change. Fran De Gioia of IRIS Software Group recalls how companies implementing IFRS 16 quickly discovered that spreadsheets could not handle this complexity. He said: “When implementing IFRS 16, most businesses initially relied on complex spreadsheets and manual processes, but these immediately failed when they had to manage lease changes.

“Each change in scope or renewal option of rent review triggers a complex mandatory reassessment. This has quickly turned into a chaotic, recurring end-of-month nightmare.”

So if you’re considering sticking with worksheets, it’s worth asking yourself: Is all the extra time, risk, and effort worth it?

Get all the information – watch the full webinar

One blog post can barely scratch the surface of what was – thanks to Sarah and Fran – 50 minutes of high quality information on all the changes to FRS 102.

SO watch the webinar to find out a lot more, because with leases it will all be a question of details.

LONDON, APRIL 6, 2025: Looming changes to employers’ National Insurance Contributions (NICs) will hit mid-sized businesses hard, with businesses employing 20 or more people facing annual costs of £8,472, according to new analysis from Employment Hero.

The changes, which come into effect on Sunday April 6, were announced in October’s budget and have sparked concern among the business community.

Analysis by Employment Hero found that while smaller employers may benefit from the extension of Employment Allowance to £10,500, businesses with more than 8-10 employees will face significant additional costs, particularly in higher wage areas like London.

This follows employment trends identified in Employment Hero’s latest SmartMatch jobs report, which uses real-time data from 105,000 employees across UK SMEs. The report showed that employment has contracted by an average of 0.3% each month since the NIC hike was announced in October, including a 0.4% decline in February alone.

Kevin Fitzgerald, UK Managing Director of Employment Hero, commented:

“These NIC changes create a significant burden on growing businesses at exactly the wrong time. Our data clearly shows that employers have been preparing for these cost increases since the announcement by slowing hiring, particularly among younger workers who saw employment fall 1.8% in February alone.”

“While smaller businesses may benefit from the Employment Allowance extension, the cost rises quickly once you exceed the number of employees from 8 to 10. A medium-sized business with 20 or more employees will face more than £8,400 in additional annual costs – money that could otherwise be invested in growth, innovation or higher wages. Larger businesses are looking at almost £18,000 on average.”

“Regional differences are also stark: small businesses in London face costs more quickly due to higher average wages. You shouldn’t be punished for wanting to pay your staff enough to survive in an incredibly expensive city. Elsewhere, large businesses in the Midlands have the highest average costs, at almost £30,000.”

The UK minimum wage has been one of the most significant labour policies of the past 25 years, but has it really delivered what workers and employers need?

Pay trends aren’t just numbers on a spreadsheet. For employees, they shape financial security and quality of life. For employers, they affect hiring costs, retention and competitiveness. For policymakers, they are a tool to address inequality and support economic stability.

This guide takes a clear-eyed look at how the minimum wage has developed since 1999, how it stacks up against the rising cost of living, and why the story looks very different depending on where you live in the UK. We’ll also explore what’s next and what it all means for employers trying to balance fairness, compliance and profitability.

UK Minimum Wage: A brief history (1999 to Present)

1999 to 2009: The foundation years

The National Minimum Wage (NMW) was introduced in April 1999 at £3.60 per hour for adults over 22. At the time, it was seen as a bold move to reduce in-work poverty. Business groups pushed back, warning of job losses, but those fears didn’t materialise. Instead, early studies showed limited impact on employment and meaningful gains in earnings.

But while the policy lifted many pay packets, it didn’t level the playing field. Living costs rose rapidly, particularly in housing and transport. Workers in London and the South East quickly saw wage gains swallowed up by rent. Meanwhile, in lower-cost regions like the North East and Wales, the minimum wage went further highlighting a divide that’s still with us today.

For employers, the new wage floor brought stability but also forced tough conversations about pricing, hiring and productivity. Those same conversations are still happening now. The difference is, today, employers have access to payroll automation and workforce planning tools that can help manage wage pressures more strategically.

2010 to 2015: A period of stagnation

The aftermath of the 2008 financial crisis left wage growth stuck. Between 2010 and 2015, the minimum wage only rose by £1.08. Meanwhile, everyday costs like rent and energy soared. Many full-time workers slipped into in-work poverty and employers faced squeezed margins and subdued demand.

Small businesses relied more on zero-hours contracts and casual hiring to stay flexible. Automation crept in, with self-checkouts and fast-food kiosks beginning to reshape low-wage roles.

Year	Adult Minimum Wage	Average Weekly Rent (England)	Average Annual Energy Bill	Food Price Inflation (year-on-year)
2010	£5.93	£149	£1,040	+3.4%
2012	£6.19	£168	£1,250	+4.1%
2014	£6.50	£181	£1,345	+1.9%
2015	£7.03	£190	£1,300	+0.5%

Sources: ONS Annual Survey of Hours and Earnings; UK Housing Survey; Ofgem historic energy price data; ONS Consumer Price Inflation

Luckily, modern recruitment software can help businesses optimise hiring decisions and manage workforce planning more strategically, reducing reliance on precarious contracts.

2016 to 2019: The National Living Wage era

A major policy shift came in 2016 with the introduction of the National Living Wage (NLW), initially set at £7.20 an hour for workers aged 25 and over. The government promoted this as a bold step to boost living standards, branding it a ‘Living Wage’ in name. However, the Living Wage Foundation quickly criticised the policy, arguing that the NLW was not truly reflective of the real costs of living, particularly in high-cost regions like London.

The voluntary Real Living Wage (RLW), calculated annually based on rent, food, transport and utility costs, was consistently higher. For example:

Year	National Living Wage (25+)	UK Real Living Wage	London Living Wage
2016	£7.20	£8.25	£9.40
2017	£7.50	£8.45	£9.75
2018	£7.83	£8.75	£10.20
2019	£8.21	£9.00	£10.55

Sources: UK Government (HMRC) National Minimum & Living Wage Rates Archive; Living Wage Foundation annual reports (2016–2019)

Employers responded in mixed ways: some cut hours, others invested in tech, while forward-thinking businesses started using non-pay benefits like flexible work and wellbeing support to attract staff.

2020 to 2023: COVID-19 and the economic squeeze

The arrival of the COVID-19 pandemic in 2020 reshaped the UK labour market. The pandemic showed how many workers depended on minimum or near-minimum pay and millions of jobs were temporarily protected by the furlough scheme, 

In 2021, the National Living Wage (NLW) was extended to workers aged 23 and over, broadening its reach. Yet wage growth during this period was quickly overtaken by rising costs. By 2022, the UK entered a full-scale cost of living crisis, with inflation peaking at over 11%, the highest in four decades.

Year	NLW (23+)	Average Weekly Rent (England)	Average Annual Energy Bill	CPI Food Inflation (year-on-year)
2020	£8.72	£201	£1,200	+1.5%
2021	£8.91	£207	£1,277	–0.3%
2022	£9.50	£213	£2,500+ (post-cap rise)	+9.8%
2023	£10.42	£220	£2,074 (after gov. support)	+11.5%

Sources: ONS Annual Survey of Hours and Earnings; UK Housing Survey; Ofgem forecasts; ONS Consumer Price Inflation; Employment Hero projections (2025)

2024 to Present: Record increases but is it enough?

In April 2024, the National Living Wage rose to £11.44 per hour for workers aged 21 and over–the largest single increase in its history. This positioned the UK as having one of the highest statutory wage floors among developed economies.

But the real question: does it go far enough? Rising housing, food and transport costs — especially in London and the South East — mean pay packets are still being stretched thin.

Below the table shows that the average proportion of net household income spent on housing costs is climbing across all tenures including, renters, mortgagors and even outright owners. For low-wage workers, this means pay increases risk being immediately consumed by higher housing costs.

Year	NLW (21+)	Average Weekly Rent (England)	Average Annual Energy Bill	CPI Food Inflation (year-on-year)
2024	£11.44	£230	£1,928	+6.0%
2025*	£12.21	£240 (proj.)	£1,849 (Ofgem cap)	+3.2% (proj.)

Sources: ONS, Ofgem, EH Projections; some 2025 figures projected

For employers, higher wage obligations are accelerating two distinct responses:

• Some small businesses are cutting jobs, raising prices or narrowing operations to cope with wage inflation.
• Others are turning towards automation and productivity investments, seeing higher wage floors as a catalyst for modernisation.

At the same time, many employers are expanding non-pay benefits to retain staff. Flexible hours, hybrid work models, wellness stipends and even free meals are increasingly offered, reflecting recognition that pay alone cannot offset the cost-of-living squeeze.

National Minimum Wage & National Living Wage

The graph tracks the UK National Minimum Wage (1999–2015) and National Living Wage (2016–2024) against inflation, showing both the nominal value (actual hourly rate paid) and the real value (adjusted for inflation back to 1999 prices). On paper, wages have risen steadily from £3.60 in 1999 to £11.44 in 2024, more than tripling in 25 years.

However, when adjusted for inflation, the picture is more uneven. The real value of the minimum wage grew during the early 2000s but stalled after the 2008 financial crisis, with purchasing power eroded by rising living costs. The 2010s saw only modest real-term gains, as wage increases struggled to keep pace with housing, food and energy prices. The cost-of-living crisis in 2022–23 created another sharp squeeze, with real wages dipping despite record nominal increases.

This illustrates a key challenge: while the statutory wage floor has reached historic highs in nominal terms, workers’ actual spending power has not consistently improved. The gap between the headline rate and everyday affordability highlights why debates around the Real Living Wage, housing costs, and regional disparities remain central to wage policy in the UK.

Salary vs cost of living

The graph comparing UK Average Weekly Earnings (AWE) and the Consumer Price Index (CPI) from 2000 to 2024 highlights the close relationship between wages and the cost of living. Both series move almost in lockstep, with a correlation of around 0.99, showing that earnings and prices tend to rise together. When indexed to the year 2000, earnings have grown by about 122%, while CPI has risen by roughly 85%, suggesting that, in nominal terms, wages have outpaced inflation over the long run. 

However, the picture is less even when broken down by sub-periods: earnings stagnated relative to inflation in the years after the 2008 financial crisis, only to accelerate more strongly in the past few years as pay growth surged during and after the pandemic while inflation also spiked. 

The indexed comparison makes clear that although workers are somewhat better off in real terms than in 2000, the gains have been uneven and concentrated in recent years rather than spread consistently across the whole period. Employers and HR teams often turn to salary benchmarking to understand how pay trends align with market expectations and ensure competitiveness.

Regional wage comparison

The picture of wage growth across the UK in 2025 reveals stark contrasts between regions, with cost-of-living pressures continuing to shape the real value of earnings. Looking at year-on-year changes (based on a three-month rolling average to August 2025), we see the North leading the way with an 11.6% increase in wages, followed closely by the East (+9.7%) and Scotland (+6.2%). The Midlands recorded a more modest rise of 3.7%, while Greater London saw only a 2.0% uplift despite its high wage base. In contrast, the South slipped into negative territory with a -2.5% decline, suggesting households there may be feeling a sharper squeeze when set against persistent housing and transport costs.

When it comes to pay levels, London remains by far the highest-paying region, with an average salary of £44,397 across both full- and part-time roles, and £50,922 for full-time workers. By comparison, the South averages £34,313 (£41,999 full-time), while the East and the North cluster around the £30,000–£39,000 range. Scotland and the Midlands sit slightly lower at £32,838 (£37,682 full-time) and £27,515 (£35,518 full-time) respectively. This demonstrates a persistent regional pay gap that continues to shape economic opportunity and mobility.

But these figures only tell part of the story. When crossed with cost-of-living measures such as housing, transport, and energy, regional disparities sharpen. For instance, London’s high salaries are significantly eroded by the capital’s steep housing costs, leaving workers with far less disposable income compared to counterparts in cities like Newcastle or Manchester, where salaries are lower but the cost of living is substantially more manageable.

Overlaying this with the Real Living Wage movement provides further insight. Adoption hotspots are emerging in places such as Greater Manchester, Salford, Birmingham, Cardiff, Edinburgh, Bristol, Norwich, Sunderland, Aberdeen, Dundee, and London’s Royal Docks in Newham. These “Living Wage Places” initiatives aim to address in-work poverty by ensuring more local employers commit to paying a voluntary rate based on actual living costs—£12.60 across the UK and £13.85 in London as of 2025. Uptake is particularly strong in major cities where local authorities and anchor employers have mobilised, helping offset the pressure of inflation on the lowest-paid.

Together, the data and the Living Wage hotspots underscore a two-speed economy: one where nominal wage growth may look strong in some regions but fails to keep pace with rising costs, while in others, proactive adoption of fair pay standards is helping to secure real improvements in workers’ day-to-day lives.

Future outlook: What comes next?

The National Living Wage (NLW) has already crossed the £12 milestone, rising to £12.21 in April 2025. Current projections suggest it will climb further to around £12.71 in April 2026, with a possible range between £12.55 and £12.86. Beyond that, the government has moved away from fixed targets and instead pledged to keep the NLW at no less than two-thirds of median earnings. If wage growth develops as forecast, that could place the NLW at roughly £13.00 by April 2027, though this remains illustrative rather than guaranteed.

Yet these headline figures mask deeper challenges. According to the Resolution Foundation’s Living Standards Outlook 2025, household incomes in 2024–25 are no higher than they were in 2019–20, while food insecurity at the start of 2025 remains twice as high as in 2021. This highlights a sharp tension; even as the statutory minimum has risen, wages haven’t kept pace with real living costs, leaving many low-income workers struggling to make ends meet.

Government policy has shifted towards embedding the principle of linking the NLW to earnings, while also asking the Low Pay Commission (LPC) to consider cost-of-living pressures. There is also a push to phase out discriminatory age bands, with a review underway on how to merge or narrow rates for younger workers. These moves are part of an ambition to make the minimum wage a ‘genuine living wage’, but the reality is more complex.

On the ground, businesses face rising costs and tight margins, and many employers argue they need stronger government support to afford higher wage bills. At the same time, workers on minimum pay often still experience in-work poverty and financial insecurity, undermining the promise that a job should provide a decent standard of living. Critics also point to the regional gaps that one-size-fits-all policies ignore: the cost of living in London or the South East is far higher than in other parts of the UK, yet wage floors remain uniform nationwide.

Looking ahead, the pace of future increases will depend heavily on the economy. Slowing inflation and weaker pay growth could temper uplifts, while persistent cost pressures might push them higher. But whatever the trajectory, it’s clear that minimum wage policy cannot be the only lever. A lasting solution requires a broader strategy; better jobs, stronger skills, fairer work practices, and a more balanced economy, rather than short-term political wins. As for the Real Living Wage, set independently by the Living Wage Foundation, it remains voluntary. The government has not signalled any intention to make it mandatory, preferring instead to adjust the NLW framework to factor in cost of living while maintaining flexibility.

Stay compliant, competitive and ahead with Employment Hero

Ready to take the guesswork out of rising wage costs? 
With Employment Hero, you can automate payroll, stay compliant with changing minimum wage laws, and give your people access to benefits that go beyond pay. From earned wage access to flexible work tools, we help you build a workplace where employees feel valued and stay for the long run. Discover Employment Hero today.

Since the announcement in the October budget, companies have been trying to prepare. However, understanding the true cost of this change has left a lot in ignorance about the quantity they will pay.

What has changed?

The change of title is that the employer’s nicks has now increased from 13.8% to 15% and that the secondary threshold will drop from £ 9,100 to £ 5,000 per year. This will mean that you will start paying Nic on the employees’ salary on lower wages than before.

The government has also announced an increase in the employment allowance (from £ 5,000 to £ 10,500) and has removed the eligibility ceiling of £ 100,000, which means that more companies can claim it. However, our data shows that this can only benefit small businesses – which means that most small businesses will pay more.

Who is affected?

If your business has less than seven employees, you may be better thanks to the increase in the job allowance. But for companies above this threshold, costs are starting to increase rapidly.

We know that you are already working with tight budgets, so to help you understand what it will mean for your net profit, we have criticized the figures. By using real -time data of more than 100,000 employee records on our platform, we have estimated the average average cost for small businesses of different sizes and regions.

Business size	Estimated increased costs (per year)
8-10 employees	£ 530
11-15 employees	£ 2,412
16-20 employees	£ 6,245
21-30 employees	£ 8,472
31-50 employees	£ 17,967

What it means for small businesses

For small larger companies, finding £ 18,000 more per year will be a hard blow. More worrying average companies – which are less likely to absorb these costs – you need to need an additional £ 8,500 per year.

The cost increase is always a concern. These increases (above higher wages) make rental more difficult. And we can see it in our data. According to our smartmatch employment report, employment has contracted 0.3% each month since Nic’s hike announced in October. In February alone, employment dropped by 0.4%, young workers seeing the greatest impact.

In simple terms, companies hesitate to hire, and our economy already feels the consequences.

Stay on top compliance changes

With all these new financial pressures, the last thing you need is more administrator or unexpected expenses. However, Employment Hero is there to make things easier. The fight against compliance changes – like Ni increases – can be difficult when you have a limited time. Employment Hero maintains your payroll and your compliance effortlessly, so you can focus on what really matters – the growth of your business.

* Nic’s costs analysis calculated the impact of the national insurance rate of the new employer, in parallel with the extension of the employment allowance to £ 10,500, by analyzing the results for companies of different sizes in various British regions.

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