The government’s plans to invest in the public sector are welcome
Employer NIC increases must be seen in the broader context, as follows:
- New employment rights
- Limitations on zero hours contracts
- Increase of National Minimum Wage
- Reform of umbrella pay
The government’s plans to invest in the public sector are welcome
Without any doubt investment should generate new jobs and improve key public sector services. However it is not known the extent to which the government will direct that investment towards tech solutions rather than labour. More IT solutions and a further focus on AI, is likely to create demand for contractors in the tech sector, in turn leading to retraining and job requirements for operators and support teams. This is a positive for recruiters and welcome for many reasons.
Employer NIC increases must be seen in a broader context
Effective from April 2025, this is in two parts: in basic terms an increase from 13.8% to 15% and a lowering of the threshold so Employer NICs will now be due on salaries from £5k instead of the current £9.1k. This, as widely suggested elsewhere, could likely impact on salary increases, relevant to recruiters own staff, and both the number and value of new requirements from hirers. It could lead to a renewed interest in hiring contractors especially as the introduction of new employment rights, processes around guaranteed hours contracts and notice of cancellation may give rise to a review of the alternatives to standard employment and agency worker arrangements.
A review of the whole picture must include the plan announced in the budget to make agencies responsible for PAYE due from umbrella companies. Here it is proposed that the party responsible for the PAYE would be the agency contracting with the hirer, and so RPOs and agencies alike are likely to refuse to deal with umbrella companies going forwards. This will mean a sea change to temp and contractor supply if enacted.
Lower cost labour will also become more expensive as the NMW increases. This will increase commission values if hirers accept the hike without changes to terms of business, but otherwise this and all the other measures could result in downward pressure on agency margins and adjustments to client terms.
Conclusion
As with any reforms such as these the devil will always be in the detail. Although consultations are due to take place on the various provisions, except for NIC and NMW aspects, it is understood that the points of principle will not be open to debate. All the same there is always scope for argument if needed. Only when finalised will recruiters and hirers be able to assess all their options.
However whilst the legislation is not planned to apply until April 2026, the umbrella reform will be included in the next Finance Bill, meaning that this part of the landscape at least is likely to be viewable and largely set in stone by the next budget.
Time waits for no one, and many businesses will need to start reviewing their offerings now.
About the Association of Recruitment Consultancies (ARC)
The association represents recruitment businesses on issues that really matter, and is part of the Lawspeed group, legal consultancy to the recruitment sector. Group representation to government has produced change to proposed legislation and so ARC is interested in feedback on the proposed changes.
For more information or to join ARC please email to info@arc-org.net quoting ‘2026 change’ in the subject line.
