Employment costs have always been a key pressure point for motor retailers. In 2026, that pressure has intensified - and not just because of pay.

Dealer groups are facing a combination of rising employer tax costs, ongoing skills shortages, structural change in aftersales and continued margin pressure across new and used vehicle sales. Taken together, even relatively small shifts in employment assumptions can now have an outsized impact on profitability.

In our 2026 Automotive Outlook, we considered the impact of recent changes to employer National Insurance, including the rise in the NIC rate and the reduction in the earnings threshold. Together, these measures have materially increased payroll costs for labour‑intensive businesses such as automotive retail, with larger dealer groups typically seeing limited mitigation from the Employment Allowance.

In this blog, we revisit five assumptions that may no longer hold in the current trading environment.

1. Total employer NIC cost

The headline NIC rate increase may look modest, but across large and distributed workforces it has a material impact on cashflow and profitability.

The key is to re‑forecast employer NIC in absolute terms, not percentages. Focusing on the marginal rate risks under‑estimating the true cost once applied across sales, service, admin and support functions - particularly where headcount has grown or pay structures are variable.

UHY prompt: What does the NIC increase look like in pounds, not percentages - and how does that compare to last year’s achieved margin?

2. Overtime and variable pay

Overtime, commission and performance‑related bonuses remain central to many dealership remuneration models, particularly in sales and aftersales.

What is often overlooked is that employer NIC applies equally to these payments. As a result, growth in variable pay can magnify employment cost inflation well beyond base salary increases - especially where overtime is being used to manage technician shortages or capacity constraints.

This matters most where variable pay models are slow to flex in line with softer volumes or tighter margins.

UHY prompt: If productivity dips or volumes soften, how exposed is the business to an inflexible variable pay structure?

3. Headcount assumptions

Small changes in recruitment, churn or vacancy assumptions can materially alter cost forecasts.

Technician shortages continue to affect planning across the sector, with some dealerships carrying vacancies for longer than expected, relying on contractors or paying above‑trend wages to secure capacity. 

This pressure is not easing. A January 2026 poll reported by AM‑online found that over 90% of franchise and independent workshops expect rising operational costs to be their biggest challenge this year, with increased employer National Insurance and ongoing recruitment difficulties both cited as contributing factors.

UHY prompt: Are headcount plans still aligned to realistic volumes and throughput, or are you carrying cost that was justified by a different market?

4. Cost per productive hour

As employment costs rise, productivity metrics become more important than ever. Tracking cost per productive hour - particularly in service and aftersales - helps distinguish between:

  • structural margin pressure caused by cost inflation, and
  • operational issues such as inefficiency, under‑utilisation or role mismatch.

This metric is especially valuable as the EV transition begins to affect workshop dynamics, training requirements and job mix, even before EV volumes materially shift.

UHY prompt: Is margin erosion being driven by higher pay rates, lost productivity or a combination of both?

5. Revenue per employee

Revenue per employee remains one of the simplest - and most powerful - indicators available to dealer finance teams.

A decline in this ratio is often an early warning sign that employment costs are rising faster than output. Used alongside departmental analysis, it helps boards move beyond anecdote and focus discussions on evidence‑based decisions around pricing, productivity and investment.

UHY prompt: How has revenue per employee moved year‑on‑year, and does it still support your current cost base?

Why this all matters now

With inflation easing but cost pressure lingering, regulatory change continuing and the EV transition reshaping parts of the dealer operating model, employment costs can quietly erode profitability if left unchecked.

Re‑forecasting these five areas will allow you to have informed, forward‑looking conversations about:

  • pricing and margin resilience
  • staffing models and productivity
  • where investment is genuinely value‑accretive

Crucially, it creates the opportunity to act before pressures become entrenched.

The next steps

Employment costs are a core strategic variable. Active management and disciplined working capital control will be critical to protecting profitability as the sector continues to adjust to cost inflation and structural shifts in the retail model. 

On page 16 of our Automotive Outlook 2026, we set out practical guidance about how dealer groups can stay cash‑smart, including specific working capital tips designed to help manage margin pressure, funding headroom and day‑to‑day liquidity in a more volatile cost environment.

If you need help with cash flow forecasts, scenario setting or general advice, please get in touch.

Let's talk! Send an enquiry to your local UHY expert.

Get in touch