How could the rise in minimum wage impact customer service costs and strategies?
With the upcoming increases to the National Minimum Wage and National Living Wage in April 2026, plus the combined impact of significant increases in these legally mandated hourly rates over the past few years, businesses will certainly be feeling the pinch. This is especially true for SMEs – which typically operate on thinner profit margins – and businesses in industries with a high percentage of minimum wage workers, such as hospitality and retail.
Worryingly, back in 2025 when employer National Insurance contributions increased, a shocking 1 in 4 companies did not have a plan in place to deal with these rising costs. With more increases in employer outgoings coming soon, this issue is likely to worsen.
However, revising your strategies in different business departments could make all the difference. For example, you could make vital customer service cost savings by devising new strategies and processes – without compromising quality. In this blog post, we'll explain exactly how the new rise in minimum wage in the UK could impact your business, and walk you through the customer service strategies you can implement to mitigate these impacts.
What will the UK minimum wage increase to in 2026?
On the 1st of April 2026, the government will increase the National Living Wage to £12.71 per hour and the National Minimum Wage to £10.85 per hour, an increase of 4.1% and 8.5% respectively. All businesses must comply with this rate change, or they could face fines and legal issues.
The minimum wage for under 18s and apprentices will also increase, rising to £8 an hour.
National minimum wage vs national living wage
The National Living Wage applies to workers aged 21 or over, whereas the National Minimum Wage applies to those aged 18 to 20.
The lower minimum wage for younger adults is designed to encourage employers to hire less experienced workers and therefore decrease the youth unemployment rate. However, the government is currently planning to close this gap and apply the same rate to all adults. In April 2026, the National Minimum Wage is getting a larger increase of 8.5%, slowly bringing the two pay bands closer together.
How can minimum wage increases affect businesses?
Higher minimum wages will have a multitude of impacts on businesses, both positive and negative. Let's explore these below:
1. Higher payroll costs
If a business employs minimum wage staff, payroll costs will increase in line with the pay rate increases outlined above. And if a business relies on a high percentage of minimum wage workers (such as retail and hospitality businesses), the payroll costs could be substantially higher and more difficult to absorb – particularly for smaller businesses with tighter margins.
2. Increased National Insurance contributions
The higher wage itself isn't the only thing driving up payroll costs. Since April 2025, employers have paid a 15% National Insurance (NI) contribution on employee earnings above a reduced Secondary Threshold of £5,000 per year (£417 per month). This means that for every £1 earned by an employee above this threshold, the employer will have to pay £0.15 in National Insurance. If a business employs many minimum wage workers who will now have a pay increase, these employer NI contributions can add up to a large amount of money.
3. Operational cutbacks
Due to the increased cost of hiring new employees, many businesses may choose to implement hiring freezes to save money. Other cost-saving operational changes may include reducing staff hours, restructuring teams, making redundancies, delaying business expansion plans, and relying on part-time staff, apprentices and contractors.
4. Pay compression
With the minimum wage rising in April 2026, this will narrow the gap between these employees and those on higher wages within your business. This can often lead to increased pressure from more experienced staff to increase their wages as well, leading to even higher payroll costs.
5. Price increases
Even after implementing other cost-saving measures, many businesses still feel that they have to pass on some of this increased cost to consumers to maintain profitability. This can relieve some pressure, but you may end up risking customer loyalty. To try and reduce the risk of losing customers, businesses must compare their prices with other businesses in their industry to remain fair and competitive, and also be upfront and honest with customers about price increases. Businesses can also raise prices on their most profitable products/services only, add more promotional offers, and implement incremental price increases to reduce the impact on their customers.
6. Improved employee retention
Not all of the effects of minimum wage increases on businesses are negative. One example is that increased wages can improve employee morale and retention rates. Retaining more experienced staff means productivity is likely to stay strong or even increase, and you won't need to spend as much money on hiring or training new staff.
How to adapt your customer service strategies to minimum wage rises
Despite the potentially positive effects on employee retention, the financial impact of an increased minimum wage can still be very difficult to deal with. Passing increased costs onto consumers and refraining from hiring more staff can help to alleviate this financial burden, but these measures can also negatively affect productivity and customer loyalty.
Instead, implementing new business strategies can help you acclimate to these higher costs without compromising customer relationships and the quality of your service. In particular, streamlining your customer service is an excellent way to continue nurturing these relationships whilst also reducing customer service costs. Here are some examples of strategies you can implement:
1. Automate answers to common queries
Automating repetitive tasks is an excellent way to streamline processes and therefore improve productivity and efficiency. In customer service, AI agents are able to answer common queries from customers instantly at any time, so you don't have to worry about hiring staff to cover quieter periods if the AI agent is available 24/7 to respond to customers.
Plus, by choosing a higher quality AI customer service software from a trusted provider like Resolvable, you can avoid common issues with AI chatbots such as hallucinations and misunderstandings. Our Robo AI software not only answers queries instantly and accurately, but it also sticks to your brand's communication style at all times, and will seamlessly integrate with your existing tech stack.
2. Adopt a hybrid human–AI customer service model
Adding AI into your customer service strategy doesn't mean getting rid of human staff. In fact, AI supports your staff and enables them to spend their time on more complex and nuanced queries that require a human touch, rather than repetitive queries and simple administrative tasks. This is both rewarding for your employees and more appealing to customers, who largely prefer to speak to a human regarding more complicated matters.
Ultimately, despite some initial investment, a human–AI model can actually reduce customer service cost and lessen the impact of higher outgoings by enabling your employees to be more productive and engaged with their work, thanks to their shift in focus from repetitive queries to more in-depth conversations. This can result in reduced employee turnover and less money spent on hiring and training more staff.
3. Consider outsourcing
In addition to using AI, businesses can reduce customer service costs and streamline processes by outsourcing some of the work to offshore agents. Again, existing staff can dedicate their time to more complex, sensitive queries, but as the volume of work increases, diverting some of this to offshore agents can save you a lot of money that you would've had to spend on higher wages.
With Team, our customer support outsourcing service, businesses can save 42% on costs compared to using in-house customer service teams alone. Plus, our experienced teams can slot right into your operations and adopt your brand voice straight away, maintaining the quality of your customer service.
4. Investing in training
Investing more money into training might seem counterintuitive when salary costs increase, but an investment in team development and employee retention now can help you save a lot of money down the line. Employees who receive in-depth training and development opportunities are likely to become more productive and experience more job satisfaction, decreasing your future hiring costs.
Introducing a customer service quality assurance system like Profile is a fantastic way to ensure continued training for your staff, helping you maintain and elevate your standards. You'll receive AI-powered quality checks and insights based on your team's customer interactions, enabling you to recognise and reward top performers and offer additional support to the employees who need it most.
5. Balancing quality and price when considering suppliers
Finally, it's important to consider both quality and cost savings when choosing suppliers for your products and services, including your AI customer service and outsourcing providers. It's tempting to slash costs wherever possible when higher payroll costs squeeze profit margins, but if you end up choosing poorer quality suppliers, this can negatively affect your relationship with customers and lead to a potential loss in sales down the line – especially if you increase the prices of your products or services at the same time. Always spend time comparing the features, prices and reviews of multiple competitors before deciding which supplier is the best value for money considering your unique needs.
If you're looking for AI and outsourced customer support services to help you reduce costs whilst maintaining excellence, Resolvable has everything you need. Discover our Robo, Team and Profile services on our site, and don't hesitate to get in touch to learn more about how we can support your business.
