10 Mar Preparing for the April 2025 National Insurance Changes: A Guide for Recruitment Agencies
The April 2025 changes to Employer National Insurance Contributions (NICs) are set to introduce new financial pressures on businesses across multiple sectors. Recruitment agencies, in particular, will face increased payroll costs and tighter profit margins as they manage the rising NIC rate and the lowered Secondary Threshold. With the rate climbing from 13.8% to 15% and the earnings threshold dropping from £9,100 to £5,000 per year, these developments demand immediate strategic planning.
For agencies working in construction, healthcare, and education – where temporary and contract-based employment is the norm – the financial and operational impact will be especially pronounced. Those unprepared for these changes may struggle to maintain profitability and competitiveness. Understanding the implications and taking proactive steps now will be critical.
The Financial Implications for Recruitment Agencies
Payroll costs are the most obvious concern. The increase in Employer NICs means that for every worker above the revised Secondary Threshold, agencies will pay more in tax. For those supplying temporary staff, this could mean narrowing margins or passing costs onto clients—both of which come with their own challenges. The new rates will also extend NIC obligations to a wider pool of workers, particularly those on lower wages who previously fell below the threshold.
In sectors such as construction, where projects rely on flexible labour, higher NICs could lead to a re-evaluation of contract structures. Healthcare recruiters may see trusts and private providers questioning their ability to sustain agency staffing at current rates. The education sector, already under financial strain, might need to rethink its reliance on supply teachers and temporary support staff.
Beyond direct payroll costs, these changes will affect agency cash flow. Many firms operate on tight payment schedules, and any increase in outgoings could place a strain on their ability to meet obligations on time.
What This Means for Construction, Healthcare, and Education
Each sector faces distinct challenges in light of the NIC changes.
Construction
Construction agencies may see subcontractor costs rise as firms attempt to compensate for increased tax burdens. The use of umbrella companies—already under scrutiny—could become even more prevalent as employers seek alternative ways to manage these costs. Labour shortages, exacerbated by Brexit-related restrictions, could further complicate the situation. Some contractors may explore salary sacrifice schemes or flexible benefit packages to offset rising NIC liabilities.
Healthcare
In healthcare, the reliance on temporary nurses, carers, and other healthcare professionals means trusts and private providers may need to renegotiate contracts. Agencies may face greater pushback on fees, particularly in the NHS, where budgets are under ever-growing pressure. Those placing locum doctors and nurses must be prepared to explain the impact of NIC increases on take-home pay, particularly for those working through personal service companies. The increase in the Employment Allowance, from £5,000 to £10,500, may offer some relief, but it will be of limited benefit to larger agencies handling extensive payrolls.
Education
Education will be significantly impacted as schools and colleges, already operating under financial strain, face higher NIC costs on supply teachers and support staff. The reduction in the NIC threshold means even lower-paid and part-time roles will become more expensive. As a result, some academy trusts and local authorities may shift towards direct hiring models, reducing their reliance on agencies. Schools may also restructure roles, consolidating teaching assistants and administrative staff to control costs.
To adapt, recruitment agencies may need to offer longer-term fixed contracts or exclusive staffing partnerships to remain viable. Multi-academy trusts may explore staff pooling across multiple schools to distribute costs, further limiting agency placements. Without strategic adjustments, agencies supplying short-term staff may face declining demand as schools seek cost-saving alternatives.
Practical Strategies for Agencies to Manage the Changes
While the changes are unavoidable, there are ways for agencies to adapt without compromising their financial health or service quality.
1. Financial Forecasting and Budget Adjustments
Agencies must immediately factor in the increased NIC costs when preparing financial forecasts. This includes reassessing profit margins, revising client billing structures, and ensuring that payroll budgets account for the additional tax burden. Those with tight margins may need to explore cost-cutting measures elsewhere to absorb the impact. Reviewing the impact on overall workforce costs—including the National Minimum Wage rise—will be essential for long-term planning.
2. Transparent Communication with Clients
Raising rates is never an easy conversation, but agencies that fail to adjust pricing may struggle to remain profitable. Open discussions with clients about the necessity of rate adjustments—backed by clear financial data—will be essential. Some clients may push back, but setting expectations early can prevent disputes later.
3. Supporting Contractors and Temporary Staff
Recruiters must ensure that their workforce understands how the changes affect their earnings. Those using umbrella companies or personal service companies may have concerns about how this will impact their take-home pay. Providing guidance on potential tax implications and exploring alternative contract arrangements could help retain talent in a competitive hiring market. Salary sacrifice schemes—such as those for pension contributions—may also offer a way for workers to mitigate the impact on their net pay.
4. Reviewing Contracts and Employment Models
For some agencies, moving toward a different employment model may be beneficial. This could mean moving more workers onto fixed-term contracts or adjusting agreements with umbrella providers. Reviewing contracts now—before April arrives—will allow firms to adapt in a controlled and strategic manner. Larger employers may also look at utilising the increased Employment Allowance where applicable to minimise liabilities.
5. Exploring Payroll Efficiency Measures
Improving payroll efficiency through technology and automation could offset some of the financial strain. Investing in better payroll systems, reducing administrative overheads, and ensuring prompt invoicing can help maintain cash flow even as NIC costs rise. Some employers may also look at restructuring remuneration packages through salary sacrifice schemes to mitigate the impact.
How I4 Services Can Support Your Agency
Navigating tax changes while maintaining business stability is no small task. I4 Services can help your agency prepare for these developments, from financial forecasting to contract reviews and payroll efficiency improvements. Get in touch to explore how we can support your transition and ensure that your business is ready for the April 2025 changes.