Spring Update 2025
Impacts of Minimum Wage Increases and NI Tax We’ve Noticed
As the recruitment industry adapts to ongoing changes in the economy, at BE Recruitment we've noticed significant shifts over the first quarter of 2025 in the way businesses approach hiring and staffing. One of the most notable changes has been the evolving conversations we’ve had with our clients in response to the increase in minimum wage and National Insurance tax. These changes have brought new challenges that have reshaped the recruitment landscape, forcing us and our peers to re-evaluate how we do business and how we engage with clients.
A Tighter, More Competitive Market
The market has undeniably become tighter, with growing competition among agencies. Due to the wider economy and costs constantly rising, more businesses are looking for solutions to keep their operational costs down. Businesses are being forced to look at hard cost savings vs the value of service in the form of soft cost savings. However, this has made it more challenging for agencies in the driving, industrial & logistics space to offer competitive pricing while maintaining quality service.
This tightening of the market has had a direct impact on rates. As recruitment agencies continue to face increasing operating costs, partly driven by the increase in national minimum wage and an increase in National Insurance tax from 13.8% to 15%. We've seen a shift in how agencies are approaching pricing. In order to remain competitive, many agencies in our space, have dropped their rates to win business, rather than focusing on selling the value of their service. The priority has shifted to cost reduction, and unfortunately, this sometimes means the quality of service gets overlooked in favour of securing a deal. In previous economic climates the service offered by the recruitment agency would be a deal-breaker for many businesses, whereas the cheapest cost is now often the more favourable option.
Client Pressure and Rate Breakdown Requests
This year, more than ever, we’ve had clients pushing for a deeper understanding of our rates. Many of our clients have asked us to break down our rates, providing a detailed justification for our margin and pricing. This has been a noticeable shift compared to previous years when rates were often discussed in more general terms.
The increase in these requests signals a growing pressure on businesses to better manage costs, and in many ways, the conversations about pricing have become more intense. In fact, we’ve had to justify our rates more this year than in any other year before. Long-term clients, who previously trusted our pricing without needing an extensive explanation, are now, understandably, requesting a thorough breakdown of our margins and justifications for the services we offer. These discussions have been challenging but have provided us with an opportunity to revisit how we communicate the value of our service and the added benefits we provide.
Adjusting Rates to Retain Clients
In one scenario, we had to lower our rates for a long-term client in order to keep the business. With the minimum wage going up and the pressures of maintaining competitive pricing, it became clear that a price adjustment was necessary to ensure the continued partnership. While it wasn’t an easy decision, it was a necessary one in order to maintain our relationship with a client we’ve worked with for over five years.
We’ve noticed this situation is not unique to us. Many other agencies are experiencing similar challenges as they balance client needs with the ongoing financial pressures of running a temporary staffing recruitment business in the current economy. Lowering rates may provide short-term relief, but it also raises important questions about long-term sustainability and the value we deliver to clients.
The most challenging aspect of this shift has been the conversations we’ve had with our long-term clients. Historically, these relationships have been built on trust and mutual respect, and the prospect of negotiating rates in the face of rising costs has been challenging but necessary. However, these discussions have been essential in ensuring we continue to meet the evolving needs of our clients without compromising the quality of service they have come to expect from us.
Looking Ahead
The shift in the recruitment market brought on by changes in minimum wage and National Insurance tax has undoubtedly posed challenges for agencies and clients alike. While it’s been a difficult year for pricing and negotiations, it has also reinforced the importance of adaptability and communication in our industry.
As we continue to move forward, we remain committed to a ‘white glove’ service that add value to our clients’ businesses. While the landscape may be more competitive than ever, we believe that transparent, honest conversations about rates and service expectations will help us continue to build strong, lasting relationships with our clients.
In these uncertain times, collaboration and flexibility are key. We’re prepared to navigate these changes with our clients by our side, offering them the best solutions, even when the economy presents new challenges.
How the Minimum Wage and NI Increase Will Affect Businesses
The upcoming changes to the minimum wage and National Insurance (NI) tax are set to shake up the business world, and the recruitment industry will feel the effects too. For companies that rely on temporary staffing, these adjustments will bring both challenges and opportunities. So, what exactly is changing, and how will it impact recruitment agencies and businesses?
What Are the Changes to the Minimum Wage?
- The National Living Wage for workers aged 21 and over is increasing by 6.7%.
- The National Minimum Wage for 18 to 20-year-olds is getting an even bigger boost, rising by 16%.
This means employers will be paying more, and for businesses that rely on temporary staff, this could have a significant impact.
What Are the Changes to NI Tax?
- From 2025, employers’ National Insurance contributions will increase from 13.8% to 15%.
- This change only affects employers, not employees, but it does make hiring permanent staff more expensive.
How Will the Minimum Wage Increase Impact Businesses?
- More Temporary Staff Usage – With costs rising, many businesses may prefer to bring in temporary staff to handle busier periods and reduce expenses when demand slows down. This allows them to avoid paying permanent employees during quieter times.
- New Clients for Recruitment Agencies – Companies that previously didn’t use temporary staff may now see it as a viable solution. This means recruitment agencies could tap into a wider range of clients looking for flexible workforce solutions.
How Will the Minimum Wage Increase Impact Recruitment Agencies?
- Higher Costs for Employers – With wages increasing, businesses will see their labour costs go up. Some may look to cut back on temporary roles, especially if they’re already working with tight budgets and struggling to justify additional agency fees.
- Shift Towards Skilled Workers – Employers may prefer to invest in experienced workers rather than hiring less experienced temporary staff. This could shrink the market for agencies that focus on supplying lower-skilled temp workers.
- Rising Pay Expectations – As entry-level wages go up, experienced staff will likely expect raises too. This could make it harder to fill traditionally lower-paying roles, putting added pressure on recruitment agencies to find workers willing to accept these positions.
- Potential Upsurge in Temporary Staffing Demand – On the flip side, some companies might turn to temporary staffing solutions to give them more flexibility. Instead of committing to long-term, higher wages, they may prefer short-term contracts, creating fresh opportunities for recruitment agencies.
How Will the NI Tax Increase Impact Recruitment Agencies?
- A Move Away from Permanent Hiring – Higher employer NI costs may push businesses to reduce permanent hires and instead rely more on temporary contracts. This is where a consultative recruitment agency can offer increased value, helping businesses align their headcounts with rising costs to minimise impact.
- Tighter Budgeting and Pay Rate Negotiations – With rising NI costs, businesses may try to renegotiate the pay rates they offer temporary staff. Recruitment agencies’ costs are increasing along with every other business. This will mean difficult conversations around margins and charge rates to stay competitive.