Minimum wage hike puts pressure on professional starting salaries
With Rachel Reeves poised to raise the minimum wage in her Autumn Budget, mid-tier professional services firms are bracing for significant impacts across the sector.
As reported last week, the Budget will likely see employers forced to raise workers’ wages from £12.21 to at least £12.70 an hour.
However, for businesses, especially those in the mid-tier professional services sector, which are already struggling with hiring and retaining talent, this additional burden is expected to cause headaches.
The reported rise in the minimum wage will result in an average salary for a minimum wage worker on a 40-hour week increasing to £26,416, thereby closing the gap with starting salaries at mid-tier firms.
Rakesh Shaunak, managing partner of MHA, told CityAM: “It is inevitable that the closing of the gap between the National Minimum Wage and starting salaries will impact the recruitment market.”
Ripple effect
“Firms will have to respond by raising starting salaries, which will have a ripple effect on progression salaries. The consequence of this will be felt by clients by way of increased charges,” he added.
According to the ICAEW, trainee accountants in the UK can earn anything between £18,000 and £28,000 a year, with the average graduate starting salary being £35,000.
This comes after a damning report in September revealed that small to mid-tier accountancy firms were facing “serious” barriers to growth due to staffing shortages, as a skills crisis continues to affect that part of the sector.
For law firms, despite top City firms making headlines for their huge starting salaries in London, the salary for juniors at mid-tier firms is a lot lower at around £40,000. While trainees and SQE candidates, as recommended by the Law Society, receive £28,090 in London and £24,916 outside London.
Mid-tier law firms are already struggling to keep up with the rapid rise in junior lawyers’ salaries at large US firms and top British firms, constantly losing top talent to firms that can offer better wages.
“The minimum wage increase adds additional pressure to the bottom line at a time when clients are already pushing back on higher fees,” explained Christopher Clark, director at Definitum Search.
Graduate roles already under the squeeze
The bump in the minimum wage will add pressure to mid-tier firms, such as audit, accounting, and consulting firms, that already employ large graduate cohorts on starting salaries of around £35,000 to £40,000, says James O’Dowd, CEO of recruiter Patrick Morgan.
He explained that, due to market conditions, these roles already operate on thin profit margins, and higher wage expectations will prompt firms to seek efficiencies elsewhere.
“We are seeing two main responses: more automation of early-career work, and an increased use of offshore or nearshore delivery teams.”
“At the same time, firms are still willing to pay a premium for graduates with strong data, AI or analytical skills, so while top talent is commanding higher salaries, the overall number of graduate opportunities is declining,” O’Dowd added.
Even at the top level of this sector, the Big Four accountancy giants are reportedly cutting hundreds of jobs and scaling back on graduate roles as a result of an increased investment in AI.
The profit problems at audit, accounting, and consulting firms are already triggering a wave of private equity interest as firms are looking for investment to future-proof their practices.
The NI cost
The news of the minimum wage increase follows other changes to tax and wage schemes last year, which have already caused headaches for bosses of professional services firms.
Rachel Reeves’ last Budget saw employer national insurance (NI) contributions increase by 1.2 percentage points to 15 percent, taking effect on 6 April 2025.
Nick Woolf, partner at Woolf&Co, said, “The increase in national insurance has definitely caused firms to think twice about hiring associates, trainees, and business services professionals.”
He noted the move by the Treasury added a “significant cost to firms, and therefore they are seeing if they can do without, where possible.”
On top of the reported rise to minimum wage, Reeves’ reportedly looking to target limited liability partnerships (LLPs) in the Budget for a tax raid as she tries to fill the fiscal black hole.