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?

1. 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.
2. 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?

1. 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.
2. 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.
3. 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.
4. 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?

1. 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.
2. 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.