National Living Wage Rise: What it Means for Restaurants and Cafés

Another rise in the National Living Wage is approaching, up 4.1% to £12.71 per hour for eligible workers aged 21 and over from 1 April 2026. And for hospitality businesses like yours the impact will be immediate. Labour is likely already one of your biggest costs, so even a small hourly increase can significantly affect margins, cash flow and your profit.


The government’s stated aim is to move towards a real living wage over time, which means further increases are likely in future years too.


For hospitality businesses with large teams, long opening hours and weekend staffing, the knock-on effects include:


  • Higher basic wage costs

  • Increased employer National Insurance and pension contributions

  • Pressure to maintain pay differentials for supervisors and senior staff

  • Reduced margin on already tight menu pricing


If you do nothing, these costs will simply erode profit.


Where businesses feel the impact most


In our experience, restaurants and cafés feel wage rises most acutely in three areas:


  • Front of house teams with high hourly coverage

  • Kitchen teams where skills are harder to replace

  • Peak trading hours where staffing cannot be reduced without affecting service


This is why a blanket approach rarely works.


Practical steps to reduce the impact


Review staffing patterns, not just pay rates


Many businesses jump straight to cutting hours, but this can damage service and morale. A better starting point is to analyse when you actually need people. Look at rotas against sales data. Are you overstaffed during quiet periods. Are there roles that can be combined during off-peak hours. Small changes here can offset a large part of the wage increase without affecting customers.


Tighten gross margin control


When wages rise, gross margin discipline becomes critical. Review portion sizes, wastage and supplier pricing. Even a one percent improvement in food margin can help absorb higher labour costs. This is often easier and less risky than increasing prices across the board.


Be deliberate with price increases


If price rises are necessary, they should be targeted and justified. Rather than increasing everything, focus on high-volume or high-margin items. Customers are far more tolerant of small, well-explained increases than sudden across-the-board jumps.


Invest in retention


Recruitment costs are often forgotten in wage discussions. High staff turnover leads to training time, mistakes and agency cover. Paying slightly more to retain reliable staff can be cheaper than constant churn, particularly in kitchens. Retention is a cost control strategy, not just a people issue.


Use forecasts, not guesswork


We are often surprised at just how many hospitality businesses still operate without proper cash flow forecasts. Understanding how the wage increase affects monthly payroll, tax and pension costs allows you to plan pricing, promotions and investment decisions with confidence rather than reacting later. This is where good management accounts and forward planning make a real difference.


What you should do now


Before the new rate takes effect:


  • Update payroll cost forecasts

  • Review rotas and staffing levels

  • Assess margin and pricing strategy

  • Factor the increase into cash flow planning


If you wait until April, you are already behind.


How MSF Associates can help


We work with restaurants, cafés and takeaways every day. We understand the pressure wage increases place on hospitality businesses and help clients plan ahead, not just process payroll after the fact. If you would like help reviewing your numbers or planning for the increase, speak to us early.


Restaurants, cafes, and takeaways can benefit greatly from working with a specialist accountant. If you hadn’t noticed already, we are specialist accountants in Leeds for food service businesses, so unlike most accountants, we have years of experience working with businesses just like you. If you're interested in finding out more about how we can help your restaurant become more profitable, book a call with one of our accounting experts.