Welcome To Another Insightful Market Update From Blueprint!
In this update, we explore how businesses are adapting to another year of rising employment costs. With increases to Employer National Insurance, National Minimum Wage, and National Living Wage, many organisations are reassessing their budgets, pay structures, and recruitment strategies. Find out more as we draw insights from our clients on IR35 determinations, shifts towards contract hiring, and the importance of efficient recruitment processes in a competitive market.
The 2024 Employer National Insurance Increase
A recap of last autumn’s budget revealed that businesses will face a significant rise in employment costs, with an increase in Employer National Insurance contributions set to take effect from April. The rate will rise from 13.8% to 15%, while the earnings threshold will be reduced from £9,100 to £5,000. As a result, employers will pay more NI on a larger portion of employee wages, adding further pressure to payroll budgets.
With businesses already managing rising costs from increases
in the National Minimum Wage and National Living Wage, the higher NI rate could
lead to tighter salary budgets, shifts in hiring strategies, and a growing
focus on cost-efficient workforce planning.
The good news is that the Employment Allowance, which
offsets some NI contributions for smaller employers, will increase from £5,000
to £10,500. This will provide some relief, particularly for SMEs, but may not
be enough to fully counterbalance the rise in costs for larger businesses.
Strategic planning and workforce adjustments will be key to navigating these
changes in 2025.
Impact on Employees: Permanent vs Contract Staff
The impact of these changes will be felt differently
depending on employment type. Permanent employees may find that salary
increases slow down as businesses struggle to absorb higher payroll costs.
Employers will need to balance competitiveness with financial sustainability,
which could lead to more cautious salary negotiations and a reassessment of
total compensation packages.
For contractors, the challenges will be more complex. Umbrella workers, who already have Employer NI deducted from their earnings, are likely to see a further reduction in take-home pay unless companies adjust their contract rates. Limited company contractors, meanwhile, may find it harder to negotiate higher rates as businesses face increased employer costs and corporation tax rises.
2025 Hiring Insights From Our Clients
The chart above highlights how 60% of our roles were filled
outside IR35 in 2024, while 40% were inside IR35 (paid via Umbrella or PAYE).
We predict that in 2025, these figures could shift as companies navigate rising
employment costs. We may see:
- More
opportunities outside IR35, as businesses move away from blanket bans.
- An
increase in contract hiring, particularly for project-based work, as
firms explore cost-effective workforce strategies.
- Potential
downward pressure on rates for inside IR35 contractors, as companies
look to offset the additional NI costs.
With cost efficiency becoming a priority, strategic hiring
decisions will be key this year. We'll be closely monitoring how businesses
respond and how these changes shape the job market in 2025. To gain further
insight, we have also sought input from our clients regarding their hiring
expectations for the year ahead. Here is what they had to say:
Reassessing IR35 Determinations
For businesses that engage limited company contractors, the
NI increase is prompting a review of IR35 assessment models. Some companies
that historically placed almost all contractors inside IR35 are now reassessing
their policies to ensure they are not incorrectly classifying roles. By
implementing more robust assessment processes and ensuring clearly defined
scopes of work, these businesses aim to increase the number of contractors
operating outside IR35, shifting towards a more balanced 70/30 split between
inside and outside IR35 engagements.
This greater scrutiny of IR35 assessments could present new
opportunities for contractors who are able to demonstrate clear independence
and project-based engagement. It may also encourage businesses to structure
contracts more effectively, ensuring compliance while still offering
competitive opportunities to attract skilled contractors.
A Shift Towards Contract Hiring?
Some firms that have traditionally relied heavily on
permanent staff are now more open to contract workers due to rising payroll
costs. In certain industries, the cost advantage of hiring permanent staff over
contractors has shrunk, making short-term, flexible contracts a more viable
option for project-based work. One large national contractor, for example, is
considering contract hiring for the first time in five years to support
upcoming projects where workforce flexibility is essential.
At the same time, consultancies that operate outside of IR35 or are exempt from certain regulations are considering increased contractor usage. However, due to uncertainty around workload visibility, some remain hesitant to commit to resourcing decisions until they have greater clarity on future projects. This suggests that contract hiring may rise gradually over the year, particularly as businesses adjust to the financial impact of the NI hike.
Further hiring predictions for 2025 from Blueprint
As competition for talent heats up in 2025, providing a
positive candidate experience has never been more important. How candidates
feel throughout the recruitment process can have a significant impact on your
employer brand and even on the quality of talent you attract. A smooth,
respectful, and transparent hiring process ensures the candidates feel valued and
can also help you, as an employer, stand out in a crowded job market.
Time to hire is another crucial factor that companies need
to assess. Lengthy or disorganised recruitment processes risk losing top talent
to competitors who move faster. A streamlined, well-structured hiring process will
improve candidate engagement and reduce drop-off rates, ensuring businesses
secure the best talent before they look elsewhere.
Final Thoughts
