Almost half of UK companies are scaling back on recruitment in response to the increase in employers’ national insurance contributions.
Yesterday (6 April), employers’ national insurance contributions increased from 13.8% to 15%, and the threshold salary at which they are paid went down from £9,100 to £5,000.
A survey by recruitment company Reed found that 46% of employers felt the tax increase would impact recruitment decisions, with almost two-thirds (64%) concerned about the change.
On average, companies estimated that their annual profits would fall by 29% after the NI increase, which has been accompanied by a 6.7% increase in the national living wage.
Of those companies which said they were not hiring or had delayed hiring at the moment, 22% said they had limited budgets due to the upcoming increase in NI contributions.
National insurance rise
Almost a fifth (18%) said that economic uncertainty around the company’s future was acting as the biggest drag on hiring.
Specifically, the increase to NI contributions is causing 27% of businesses to postpone or cancel hiring new employees, with 16% planning on making redundancies and 19% reporting that they would postpone or cancel salary reviews.
According to Reed’s survey, the NI hikes are impacting businesses in London more than those outside the capital.
Sixty per cent of London companies said that the NI changes would impact their hiring decisions this year, compared to 38% of those outside London. Almost a quarter of London businesses surveyed said they were already making redundancies, compared with 12% elsewhere.
When it comes to coping with the higher national minimum wage, 26% said this had led to a pause in hiring. Over a third (35%) said the rise had impacted their ability to hire. Almost half (47%) said they would need to increase wages for other employees on higher salary bands because of the minimum wage increase.
London employers were the most likely to increase pay settlements for higher paid workers, with 58% saying the increase at the lower end of the scale made this necessary.
This echoes recent findings from Brightmine, which found that almost 60% of businesses would have to raise wages overall, and 75% expecting challenges around pay differentials.
James Reed, chairman and CEO of the Reed Group, said: “Everyone understands that there are difficult decisions to be made given the state of the public finances, but we warned when the increase in employers’ NI was announced that it was a tax on jobs and so it has proved.
“The hole this tax increase has made in a million company balance sheets is regrettable. These are tough times for companies that want to hire and expand and this will feed through into weaker economic growth.”
Reed said there were still great opportunities available for good candidates. “There is a rich vein of talent available to employers in the UK and there are many things businesses can do to adapt to the change and not have to sacrifice all their hiring goals.
“If you spend more time trying to keep existing staff happy, by focusing on things like competitive salaries and offering training courses to allow employees to advance, you can ensure you hire for roles that are really critical to the success of your business and keep down costs.”
Charlotte Lucy Hall, co-founder of HR tech start-up Zinc, added: “The increase to National Insurance Contributions was always going to be a blow to UK business, particularly with the added pressure of the impact of US tariffs, putting the pressure on UK early-stage and rapidly scaling businesses.
“Now it is imperative to get hiring new talent right by taking a more cautious approach, focusing on essential roles and high impact talent. When hiring fewer staff, every new hire will have a greater direct impact on the business. Going forward, businesses must take a more considered approach to hiring, but also be strategic — investing in skills and tools that drive efficiency and reduce workloads for hiring teams, while navigating an expensive wider market.”
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