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.