Between losing tens of thousands of jobs since the 2024 Budget and seeing the largest percentage decline in payrolled employees of any sector in December 2025, it’s been a bruising 18 months for retail and hospitality. Against that backdrop, rising wages should be a rare piece of good news. And in some respects, it is.
Drawn from 412 UK businesses covering 15,377 employees, Employment Hero’s latest payroll data shows that wages in retail and hospitality rose 18% Year-on-Year (YoY) in February, a significant uplift for existing workers in a sector that has taken a sustained hit.
But other figures challenge that optimism. Employment growth is down -1.1% YoY, and down a further -1.5% in the last three months. Businesses are paying their existing staff more. They’re just not hiring anyone new.
Why wages are rising now
One of the most immediate pressures facing UK businesses is the National Minimum Wage increase landing in April, which raises the rate for workers aged 21 and over from £12.21 to £12.71 per hour, and from £10.00 to £10.85 for 18 to 20-year-olds.
Rather than scrambling to comply at the last minute, businesses in retail and hospitality are absorbing the cost now. This is a sector where around a third of all minimum wage jobs are concentrated, according to the Low Pay Commission, and more than half of all hospitality roles already pay below the Real Living Wage (53.1%, the highest proportion of any UK industry, according to the Living Wage Foundation).
The Employment Rights Act, which comes into force around the same time, is adding another layer of cost and legal complexity for SMEs. Almost a third of UK businesses (29%) surveyed by Employment Hero said they plan to adjust salaries and benefits in response to upcoming legislative changes. Together, the two changes are forcing businesses to rethink not just how much they pay, but how many people they can afford to hire.
The workers most at risk
Younger workers have seen the biggest wage gains. Under-25s are up nearly 30% YoY, the steepest increase of any age group, a direct consequence of how the National Minimum Wage structure works at the lower end of the pay scale.
But the same workers are most exposed to what could come next. The British Retail Consortium has calculated that the cost of employing a part-time entry-level worker rose by more than 13% in 2025 alone. Its latest survey of retail CFOs found that 52% plan to reduce staff hours or overtime, and a further 32% plan to freeze recruitment entirely.
Kevin Fitzgerald, UK Managing Director of Employment Hero, explains that while “many Retail and Hospitality businesses have been warning” about these outcomes, there are more potential pitfalls ahead.
“Businesses are having to make decisions now about how they structure their workforce going forward. For many, that means being more cautious about hiring, particularly in roles that have traditionally relied on part-time or younger workers.”
“The risk is that what looks like a positive story on wages in the short term could translate into fewer opportunities in the months ahead. As pressure builds, we may start to see a slowdown in hiring that disproportionately impacts those trying to enter the workforce,” he says.
What the data is signalling
It’s not necessarily a contradiction that wages are rising while employment is falling. For a sector already running on thin margins, a double-digit increase in employment costs simply has to come from somewhere. For most businesses, that somewhere is headcount.
While the ONS’s latest labour market data records that UK payrolled employees fell by 96,000 (0.3%) in the year to January 2026, Employment Hero’s real-time payroll data provides an immediate read on how businesses are responding to cost pressures as they land. Right now, that data is showing a sector complying with the changes and contracting at the same time.
