The UK government will increase Employers' National Insurance Contributions (NICs) from 13.8% to 15% in April 2025, so recruitment agencies that supply temporary workers should already be planning for this change.
The rise in E'ers NICs and a reduction in the secondary threshold from £9,100 to £5,000 will mean increased employment and payroll costs for agencies and umbrella companies. Understanding how to manage these changes is crucial for sustaining profitability and maintaining strong relationships with clients and workers.
Impact on Recruitment Agencies and the Labour Supply Chain
- Higher Employment Costs—The NIC hike will increase the cost per temporary worker. For example, the employer NICs for a contractor earning £30,000 per year will increase by approximately £850.
- Cost Absorption Dilemma – If end clients refuse to absorb the increased cost, the financial pressure shifts down the supply chain. In most cases, workers absorb the cost through reduced assignment rates, which impacts their overall take-home pay.
- Contractor discontent—If contractors have to absorb the increase, resulting in a reduction in take-home pay, this can quickly lead to discontent. Contractors may request a rate increase to compensate for the reduction or seek alternative, better-paid assignments.
How Agencies Can Manage the Impact of the Employer NIC Increase
- Establish a Clear Understanding—To get a clear picture of the actual cost of the increase, it is critical to understand which and how many contractors will be affected.
- Engage with Umbrella Company Suppliers—Speaking to the umbrella companies within your supply chain will help you understand the increase's impact and develop responses.
- Review Client Agreements: Engage with end clients early to discuss the increases, cost absorption, and strategies. Clarity and transparency will engender trust in your relationship with them.
- Transparent Communication: To maintain trust and loyalty, inform your contractors about the changes and potential rate adjustments.
By proactively addressing these changes, agencies can better navigate the challenges while safeguarding their relationships with clients and contractors.
For more information on the increase in employer NICs and how best to manage them, contact Champion's team of experts for help and advice. You can contact them now at 0161 703 2549 or by email at info@championcontractors.co.uk.