Despite the possible hike in National Insurance contributions coming as now surprise, and indeed the scale of the increase being in some cases lower than expected, it is still this impact that will probably affect recruiters the most: “We’ve heard from our customers – some of the UK’s biggest recruiters – that the increase in employer National Insurance contributions announced in today’s budget is likely to result in a decrease in hiring,” said Lee Biggins, CEO and Founder of CV-Library. “Employers will need to shoulder the cost and there is a very real worry that it will ultimately hit workers through lower wage growth or less hiring.
“We’re seeing businesses already holding back on hiring as they wait and see how the economy will respond to a new government,” Biggins continued. “The number of jobs advertised in the last 12 months was 11% down on the previous period and our recruiter survey paints a concerning picture for the coming year.”
Biggins also notes that a survey of 146 of the country’s largest recruiters found 59% expecting to see a decrease in hiring if employer NI contributions went up. “A vibrant job market can boost the economy through positive wage growth and business investment,” said Biggins, “the worry is we’ll see the opposite from today.”
A hike to employers’ NI could encourage bigger businesses to rethink their stance on IR35 and become a “a catalyst” for freelancer and contractor opportunities, says Qdos, an IR35 specialist. The increase in employers’ NI to 15% – currently 13.8% on employee earnings over certain thresholds – means employers will pay more tax for each payrolled member of staff from April 2025. However, contract workers engaged ‘off-payroll’ are not subject to the tax. This could incentivise businesses to engage these flexible workers and reverse contractor bans enforced upon the introduction of the off-payroll working rules in 2017 and 2021.
Qdos CEO, Seb Maley, also wondered if the employer’s NI increase would cause a rethink for employers on IR35 and lead to growth in the use of freelancer and contractor talent: “The cost of employing people will increase, which could lead to a surge in demand for freelancers and contractors engaged off-payroll,” he said. “Given how many businesses shifted contract workers on the payroll in response to IR35 reform, an employers’ NI hike may prove to be the push they needed to rethink this stance. It could become a catalyst for contract opportunities.”
If Maley is right this will push the need for IR35 and off-payroll rules to be addressed carefully by the new administration. “Businesses engaging contractors and the wider self-employed must prioritise their compliance and ensure these workers are engaged under the correct employment status,” he said. “Falling foul of these rules can result in staggering tax liabilities, which could wipe out potential savings made on employers’ NI.”
Interestingly, Crawford Temple, CEO of Professional Passport had a different take on the NI raise with regard to the umbrella market saying: “Today’s confirmation by the Chancellor that we will see a rise in employers NICs, coupled with a reduction in the threshold, will have a detrimental impact on workers operating through umbrella companies. This is due to the fundamental structure of umbrella company payments, where the monies received include all employer costs. As these costs increase, there will inevitably be less money available for workers, resulting in a direct reduction in their take-home pay.
He added: ”What’s particularly concerning is that this change together with the increase to the employment allowance could inadvertently strengthen the position of non-compliant providers in the market. These changes to the NICs threshold will open the floodgates for tax avoidance schemes to proliferate, as unscrupulous umbrella companies promise unrealistic returns to workers who are seeing their legitimate earnings decrease.”
Together with the changes/initiatives made for compliance within the contractor market, Temple forecasts a significant change in the shape of the market and as well as seeing agencies ramp up the need for robust enforcement measures in the run up to April 2026.
Damon Hopkins, Head of DC Workplace Savings at independent financial services consultancy Broadstone also chartered the possible fallout from the change in National Insurance: ”An increase in the rate of employer National Insurance and lowering the threshold for when businesses start paying the tax will add to the financial pressures that businesses are already experiencing,” he said. “With the exception of very small businesses, this revenue raising measure is likely to have immediate knock-on consequences whether that is pausing hiring, scaling back or scrapping pay increases and/or reviewing existing employee benefit arrangements.”
