UK Budget: Recruiters warn contractors, clients and umbrella companies to brace for harsh landing

Recruitment agencies and contractors alike are bracing themselves as the new government’s Budget proposals loom large, with potential changes that could drastically alter the recruitment landscape.

Mary Maguire, Managing Director at Astute Recruitment Ltd, is among many recruiters warning that the impact of the pending UK Budget could be significant on recruitment levels. The concern revolves around a potential hike in employer National Insurance (NI) contributions.

“Successful temporary recruitment is the lifeblood of businesses—why would the newly elected government want to kill it?” she asks.

Maguire admits that a fair NI tax burden is acceptable but tells The Freelance Informer, “For the new government to tap into the Recruitment sector and make already squeezed margins even tighter will create immense impacts on business and industry! Surely that is self-defeating for the New Government as they have stated many a time they are the party for business!”

Recruitment agencies to feel financial pressure

For permanent and fixed-term contractors, employers typically cover NI costs. However, for interim or temporary staff, recruitment agencies are often left to shoulder this burden unless the contractors fall outside the IR35 legislation. This adds pressure to recruitment businesses, which are already grappling with rising operational costs.

Unlike what ‘happens in marbs stays in marbs’, an NI tax hike won’t just affect the Recruitment sector.

Mary Maguire, Managing Director at Astute Recruitment Ltd

Maguire would like to remind the Chancellor that the flexibility that temporary and interim appointments bring is crucial to many businesses, helping them adapt to challenges, cover for sickness or maternity leave, and take on new projects. Maguire notes that these roles contribute to profitability, growth and job creation.

If these crucial services become financially unfeasible due to increased NI contributions, she fears as do other recruitment agencies, the ripple effect could hinder business growth and job creation—an ironic twist for a government claiming to support enterprise.

“Unlike what ‘happens in Marbs stays in Marbs’, an NI tax hike won’t just affect the recruitment sector,” she says.

A 1% increase in National Insurance could add approximately £1,200 in annual costs for an employer per employee earning £40,000, leading many businesses to reconsider their hiring strategies.

Ketan Dattani, recruitment specialist

Ketan Dattani, a specialist in recruitment for sectors such as environmental health, echoes these concerns, pointing to the significant financial implications for employers.

“A potential hike in employer National Insurance contributions could significantly impact the recruitment industry, especially in specialised sectors like environmental health,” says Dattani.

Businesses to reconsider hiring strategies

“For instance,” he continues, “a 1% increase in National Insurance could add approximately £1,200 in annual costs for an employer per employee earning £40,000, leading many businesses to reconsider their hiring strategies.”

According to the Recruitment and Employment Confederation (REC), this could slow down job creation, as more than half of businesses already cite rising costs as a barrier to hiring.

Umbrella companies will become less attractive to contractors

Dattani says tightening tax loopholes may make umbrella companies less appealing to contractors:

“Currently, around 15% of contractors use these companies, but with potential reductions in take-home pay, many may seek to negotiate higher rates to compensate for increased deductions. This could push rates up by 5-10% as contractors aim to maintain their income levels, which might strain client budgets and affect recruitment margins.”

With businesses already feeling the pinch, these changes could create a perfect storm of rising costs, reduced flexibility, and slower job growth. Recruiters and contractors will need to stay agile, but as the Budget unfolds, the stakes for the industry could hardly be higher.

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