Employing minimum wage workers is now more expensive than ever for UK businesses.
Recent changes to employers’ National Insurance Contribution rates have significantly increased staffing costs, placing serious pressure on budgets.
What’s changed?
On 30th October 2024, Chancellor of the Exchequer, Rachel Reeves, delivered the Autumn Budget in which she announced notable changes to National Insurance:
- Employers’ National Insurance Contribution rates would rise by 1.2%
- The threshold for employer contributions would drop by £4,100
These changes were brought into effect on 6th April 2025, taking Employer National Insurance Contribution rates from 13.8% to 15%, while simultaneously lowering the salary threshold for the amount NICs apply to from £9,100 to just £5,000.
This means employers are having to make higher contributions on employee earnings. Plus, with an increasing number of employees now above the threshold, businesses aren’t just paying more tax, they’re paying more tax on more salaries.
What this means for employers
The Chancellor anticipated that the changes would raise £25 billion by the end of the forecast period; money that would be directed towards funding public services.
While the need for greater public service funding is clear, this comes at a price for UK organisations, who are now facing financial pressures due to rising labour costs. In many sectors, this increased tax burden has been compounded by a labour pay rise, placing even more pressure on operational budgets.
Let’s put this into context. For an employee earning £10,000, the amount paid in Employer National Insurance Contributions has risen from £124 to £750; a 6.2% rise in overall labour cost per employee. And that adds up quickly. Whether you employ 10 people or 10,000, this year’s rise means overheads have gone up significantly.
However, not all businesses will be impacted in quite the same way.
The Institute for Fiscal Studies (IFS) notes that this change will likely hit labour-intensive sectors hardest, particularly employers who typically hire young, less experienced, lower income workers. In retail, for example, costs are expected to rise by 7%.
Navigating the challenge
UK businesses are now in the process of reviewing costs, and for many, the obvious solution appears to be reducing headcount and making redundancies.
According to the CIPD, one third of businesses are considering redundancies following the NICs increase, with Chief Executive Peter Cheese noting that ‘businesses have had time to digest these impending changes, with many now planning to reduce headcount, raise prices and cut investment in workforce training’. Cheese calls this ‘the most significant downward change in employer sentiment we’ve seen in the last ten years, outside of the pandemic’.
This shift in sentiment reflects growing concern over the cumulative effect of both rising employer tax obligations and the broader labour pay rise changes.
However, downsizing brings its own problems. Understaffing leads to delays, lost sales, and operational inefficiencies. That’s why savvy businesses are instead shifting towards smarter staffing models, such as the use of a contingent workforce.
How flexible staffing can help
Financially favourable:
While the traditional staffing model is becoming harder to sustain, flexible solutions are a powerful alternative. Shifting to a contingent workforce offers a practical way to maintain productivity without being committed to large NI payments for a permanent workforce.
Payroll savings:
Contingent workers are off-payroll staff who offer flexible availability, without increasing the administrative or financial burden.
All tax matters – including Employer National Insurance Contributions, payroll taxes, and statutory deductions – are handled by the employing agency or umbrella company, so organisations can access talent as needed without paying the new 19% NICs rate.
When you hire temporary workers through Indeed Flex, you unlock even more savings. That’s because Indeed Flex is the legal employer of every ‘Flexer’, which means we also take care of holiday pay, pension contributions, and statutory leave.
Enhanced cost control:
Using a Vendor Management System (VMS) to manage your contingent workforce provides a range of strategic advantages, including better cost and budget optimisation. It provides a complete overview of all staffing-related expenses so you can better manage costs. A VMS can also optimise workforce planning, so you’re not under or overspending on staff costs as demand fluctuates.
Final thoughts
Rising National Insurance costs are undoubtedly a burden for British businesses. They’ve dramatically increased the cost of employment for some and forced others to rethink their recruitment plans. However, cutting jobs doesn’t have to be the default response to rising costs. A reliable, committed contingent workforce ensures access to skilled staff when needed, while also keeping costs in check.
