Cutting Costs and Boosting Efficiency: How Monthly Payroll Can Help Businesses Navigate the National Living Wage Increase

By Abhishek Agrawal, general manager at Access EarlyPay.

With the National Living Wage set to rise to £12.21 per hour in April 2025, businesses across the UK will be grappling with a substantial rise in labour costs. For many, this isn’t just a small adjustment – it’s a significant financial shift that demands a reassessment of pricing strategies, profit margins, and cost-saving initiatives.

Some businesses will inevitably pass the cost onto customers, hiking prices to balance the books. Others will need to dig deeper, by streamlining operations, optimising processes, and finding efficiencies wherever possible. 

Payroll is one of the largest yet often overlooked expenses for many businesses. As wages rise, businesses can save significantly by adopting monthly payroll and modern pay strategies. 

The cost-saving potential of monthly payroll

Our recent report, looking at how businesses can effectively manage the transition from weekly to monthly pay, revealed that businesses still operating on a weekly payroll system are missing out on significant cost reductions, owing to higher administrative costs, increased payroll processing fees, and less efficient cash flow management.

Moving to a monthly pay structure has helped 93% of users to navigate the cost-of-living crisis and can lead to savings of between £40 and £100 per employee annually. For larger companies with 2,000 employees, this could amount to approximately £140,000 in payroll cost reductions alone.  

At a time when recruitment and retention challenges are mounting, businesses can’t afford to leave money on the table. ONS data shows that job vacancies in the UK remain high at 819,000, and with labour shortages pushing wages even higher, this makes it more important than ever to maximise every pound spent.

Why some industries rely on weekly pay

Industries with traditionally high staff turnover, such as hospitality, construction, and manufacturing, have long relied on weekly pay to provide a more frequent income stream for employees who may seek quicker access to their earnings.

However, despite this approach, recruitment remains a significant challenge. Recent research from the British Chambers of Commerce highlighted that these industries are among the hardest hit by staffing shortages, with 85% of construction companies, 80% of manufacturing businesses, and 76% of hospitality firms struggling to fill roles.

Further to this, many companies in these industries can simply no longer afford the administrative burden of a weekly payroll system. While this model provides employees with more immediate access to earnings, the additional time, resources, and potential for human error make weekly pay an expensive choice for businesses striving to manage costs effectively. 

By consolidating payroll into a monthly structure, companies can streamline operations and reduce these administrative expenses.

Managing the transition to monthly payroll

The real concern around shifting to monthly payroll is about employee financial wellbeing. Many workers budget around weekly wages, and a sudden shift to monthly pay can cause real financial stress. This is where businesses need a modern payroll strategy that balances cost efficiency with employee needs.

A smooth transition from weekly to monthly pay requires clear communication and financial support to help employees adjust. 

Some businesses opt to offer an advance payment equivalent to three weeks’ wages, which is then recovered over subsequent months, but this can be costly for employers, especially in high-turnover industries where employees may leave before the advance is repaid. 

In response to this, a growing number of companies are turning to earned wage access (EWA) – or on-demand pay – as a bridge between weekly and monthly pay cycles. Rather than waiting for payday, employees can access a portion of their earned wages whenever they need it.

The long-term benefits for businesses and employees

Beyond cost savings, on-demand pay can reduce absenteeism, enhance productivity, and contribute to a more positive workplace culture. Businesses also frequently report higher engagement, improved retention, and a stronger ability to attract talent after adopting EWA.

Our research found that 93% of users feel that this has helped them navigate the cost-of-living crisis, while 75% of employees who had previously relied on credit cards or payday loans used these options less frequently once they had access to EWA. 

Meanwhile, businesses using EWA saw a 46% increase in employees taking extra shifts, an 80% boost in employee loyalty, and were 73% more likely to attract new hires compared to competitors without on-demand pay options. 

These figures underscore how EWA directly enhances workforce motivation and stability, helping businesses cultivate a more committed and productive team while fostering financial security for employees and long-term organisational success.

A smarter approach to payroll management

The National Living Wage increase isn’t just a payroll issue – it’s a business-wide challenge. Companies that continue with inefficient pay models will find themselves at a disadvantage, forced to make tough decisions on pricing, hiring, and operational cuts.

Moving to monthly payroll is a smart financial decision, but it needs to be handled with care. By integrating on-demand pay, businesses can ease the transition, reduce financial stress for employees, and ultimately create a more stable, engaged workforce.

Now is the time for decision-makers to take proactive steps – rethinking payroll and adopting a forward-thinking strategy that secures both financial and operational stability.

With the National Living Wage increase on the horizon, businesses can no longer afford to take a wait-and-see approach. A proactive payroll strategy isn’t just about staying ahead of rising costs – it’s a smart investment in financial stability and workforce loyalty.