As the dust settles following a series of government’s announcements and the recent Budget, we have summarised below the key points as we see them.
The UK’s recent Budget introduces substantial changes impacting employment legislation and the associated costs. The biggest impacts include an increase in employer National Insurance contributions and a rise in the National Living Wage.
These adjustments will affect financial planning and workforce management for businesses. Additionally, the government is stepping up efforts to regulate umbrella companies, aiming to ensure compliance and protect workers’ rights. Ethical recruitment agencies, such as us, play a pivotal role in guiding businesses through these changes, ensuring adherence to regulations while supporting operational efficiency.
Impact of the Budget on Employment Costs
Employer National Insurance Contributions
The main headline in the Budget is the rise in Employer’s National Insurance contributions. This tax increase has been put in place to raise a £25.6 billion over the term of this government. Whilst raising revenue, it could also slow wage growth and increase financial pressure on businesses. Raising Employer’s National Insurance contributions from 13.8% to 15% will notably impact costs for employers. For example, for an employer of 100 workers on the National Living Wage, this change equates to an additional £20,800 in employment costs annually. Immediate commentary from business groups indicates that these added expenses may be passed onto consumers – potentially impacting inflation – or lead to cuts in pay raises and bonuses. The Financial Times reports that the Institute for Fiscal Studies (IFS) warns this measure could result in job losses, particularly affecting low-paid workers, as many businesses may struggle to absorb these additional costs.
National Living Wage Increase
The National Living Wage will increase by 6.7%, rising to £12.21 per hour on 1st April 2025. This follows the 9.8% increase last year. This adjustment aims to help workers keep pace with the rising cost of living, providing an additional annual income of £1,400 for millions. However, the increase will place further financial burdens on businesses, potentially contributing to higher unemployment rates. This coupled with other employment law changes published in the Employment Rights Bill are really adding pressure on employers and businesses.
Government Initiatives on Umbrella Companies
The government has also announced new efforts to regulate umbrella companies to protect workers’ rights and ensure compliance.
In the 2022-2023 period, over 700,000 workers were engaged through umbrella companies, with the government estimating that at least 275,000 of these workers may not have complied with tax obligations, often unknowingly. This non-compliance is believed to have caused significant tax losses, including £500 million from disguised remuneration schemes. To address this, starting in April 2026, the responsibility for Pay As You Earn (PAYE) tax will shift from umbrella companies to recruitment agencies supplying workers to end clients. If no agency is involved, the end client will assume responsibility. This change aims to protect workers from unexpected tax bills and encourage fair tax practices within the labour market. As an ethical business, we welcome this regulation. We rarely use umbrella companies, and when we do, we ensure that all tax liabilities are met.
Role of Ethical Recruitment Agencies
Ethical recruitment agencies, such as Major Recruitment, play an essential role in helping businesses navigate the evolving employment landscape. By adhering to best practices and maintaining transparency, we ensure that clients, workers, employees and candidates are well-informed about regulatory changes and their implications. We are proud of our ethical stance and our own compliance with employment laws and regulatory bodies. We are able to provide guidance on managing increased employment costs, supporting businesses in maintaining operational efficiency while upholding ethical standards.
It is important to remember that the cost of employment is more than merely a salary and legislative payments.
We are happy to offer consultative services to businesses to help identify all the costs of employment. We call this Total Costs Analysis; it encompasses, but not limited to, the following:
- Attrition
- Recruitment activity
- Attracting quality
- Performance
- Fulfilment
- PPE / Workwear
- New starter onboarding
- Engagement & culture
- Umbrella use, identifying or auditing
Whilst the increases in National Insurance and National Living Wage are unavoidable, an improvement in your employee retention could pay for it, making the increases next year cost neutral.
To Conclude…
The recent Budget introduces measures that significantly impact employment costs and regulatory compliance. Businesses must adapt to these changes to remain competitive and ensure compliance. Partnering with ethical recruitment agencies like Major Recruitment provides valuable support in navigating these challenges, keeping businesses informed and compliant within the evolving employment landscape. If you would like to book a meeting to discuss these changes and how we can help, please get in touch.