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From April 2025, changes to Employer National Insurance Contributions (NICs) will increase costs for recruitment agencies. The updates include a higher NIC rate and a lower threshold for contributions. Agencies that prepare now will be better placed to manage these changes and protect their finances.

 

What Are the Changes to NICs?
From April 2025, the rate for Employer NICs will increase from 13.8% to 15%. At the same time, the Secondary Threshold, the point where employers start paying NICs for employees, will drop from £9,100 to £5,000 per year. This means employers will pay NICs on more of their employees’ earnings, which will push up payroll costs.

 

How Will This Impact Recruitment Agencies?
Agencies employing many temporary or low-paid workers will be hardest hit. The lower threshold means NICs will apply to more employees. For instance, agencies could face an extra £900 per year in NICs for each employee earning a median salary.

The increased NIC rate and reduced threshold create a double hit. Agencies must decide whether to absorb these costs or pass them on to clients, while still staying competitive.

To effectively manage the financial impact of the upcoming Employer National Insurance Contributions (NICs) changes, recruitment agencies can implement several strategic measures:

1. Review Budgets and Plan Ahead

• Conduct Comprehensive Financial Analysis: Assess current payroll expenditures to understand the baseline before the NICs increase. Utilise financial planning tools to model various scenarios, estimating the additional costs attributable to the NIC rate rise from 13.8% to 15% and the Secondary Threshold reduction from £9,100 to £5,000.
• Identify Cost-Saving Opportunities: Examine operational expenses to pinpoint areas where efficiencies can be achieved. This may involve streamlining processes, adopting new technologies, or renegotiating supplier contracts to reduce overheads.

 

2. Talk to Clients About Contracts

• Initiate Transparent Discussions: Engage clients in open conversations about the impending NIC changes and their implications on service costs. Providing detailed explanations fosters trust and helps clients understand the necessity for adjustments.
• Propose Contract Adjustments: Based on the financial analysis, suggest modifications to existing contracts that reflect the increased operational costs. This could include revising fee structures or implementing clauses that account for future statutory changes.
• Highlight Value Addition: Emphasise the quality of service and the value the agency brings to clients. Demonstrating a commitment to excellence can justify cost adjustments and reinforce client relationships.

 

3. Review Employment Arrangements

• Evaluate Staffing Structures: Analyse the current mix of permanent and temporary staff to determine the most cost-effective composition. Consider the financial implications of each employment type under the new NIC stipulations.
• Consider Flexible Working Models: Explore options such as part-time roles, job sharing, or freelance contracts where appropriate. These arrangements can provide flexibility and potential cost savings.
• Implement Workforce Planning: Develop strategic hiring plans that align with projected business needs and the new financial setting. This proactive approach ensures the agency remains agile and responsive to market demands.

 

How to Communicate Changes

Clear communication with clients and contractors will be key. Here’s how to approach it:

• Inform Clients Early: Explain how the NIC changes will affect costs and why adjustments may be needed. Frame the discussion around compliance with government rules to help clients see the bigger picture.
• Work With Contractors: Let contractors know how these changes might affect their contracts. Collaborate to find fair solutions that work for everyone.
• Keep Everyone Updated: Regular updates will keep clients and contractors informed of any further developments.

 

How Payroll Providers Can Help

Payroll providers will be an important ally for agencies managing these changes. They can offer:

• Updated Payroll Systems: Providers will adjust systems to reflect the new NIC rates and thresholds, ensuring accurate calculations and compliance.
• Cost Analysis Tools: Some payroll providers offer tools to help you understand how the changes will impact your business, making it easier to budget and plan.
• Expert Advice: Providers with experience in employment law and tax rules can offer guidance on reducing costs while staying compliant.

 

Getting Ready for 2025

Preparation will make a big difference in how smoothly your agency adapts to the new rules. Here’s how to get started:

• Review Policies and Systems: Evaluate your current employment policies and payroll systems to ensure they comply with the new rules. Look at whether your systems are equipped to handle the updated NIC rates and thresholds. Identifying and addressing gaps now will prevent costly errors and delays later.
• Train HR and Payroll Teams: Provide comprehensive training for staff involved in payroll management. Ensure they are familiar with the new NIC structure, the updated Employment Allowance criteria, and any relevant compliance procedures. Regular workshops or guidance from external experts can make this process smoother.
• Engage External Advisors: Seek advice from experts in employment law, tax policy, or payroll systems. They can offer insights into the finer details of the NIC changes and suggest tailored strategies for managing the increased costs. Using their expertise can save time and help you avoid compliance risks.
• Perform Financial Modelling: Simulate various payroll scenarios to understand the cost implications of the NIC changes. This will help you forecast budget needs and plan for adjustments, ensuring financial stability during the transition.

 

The Takeaways

The changes to Employer NICs will increase costs for recruitment agencies, especially those with temporary and low-paid workers. However, with careful planning, clear communication, and support from payroll providers, agencies can manage the transition. By acting now to adjust budgets, renegotiate contracts, and review staffing structures, agencies can limit the financial impact and stay competitive.

Connect with Payme to explore how we can help your organisation manage these changes effectively.