The Labour Government’s 2024 Autumn Budget brought with it notable policy adjustments, including increased taxation and costs. These changes are designed to reduce the UK's fiscal deficit but are anticipated to have significant impacts on various industries, organisations, and their employees. A key concern is the rise in employer National Insurance (NI) contributions, which could affect recruitment, growth, and talent retention in 2025 and beyond. For technology companies, particularly startups, scale-ups, and those reliant on highly skilled talent, this shift presents both challenges and opportunities. As a leading technology recruitment partner, Lorien is here to help businesses navigate these changes, ensuring they continue attracting and retaining top talent despite rising costs.

Changes to National Insurance in April 2025

The 2024 Autumn Budget contained several important announcements with potential effects on employers and employees, such as an increase in the minimum wage and tax hikes across different sectors. One major change is the upcoming rise in National Insurance contributions for employers, effective from April 2025. This will see the employer NI contribution rate increase from 13.8% to 15%, with the threshold for this new rate dropping from £9,100 to £5,000 of an employee's salary. As a result, businesses across the UK will face higher employer National Insurance costs, and many lower-income and part-time workers will now fall under the NI system, increasing the number of people and amount of tax companies must account for. Additionally, employer costs will rise further due to an increase in the National Living Wage to £12.21 per hour and a rise in the National Minimum Wage, with workers aged 18 to 20 earning at least £10 per hour.

For tech businesses, which often employ a mix of permanent staff, contractors, and contingent workers, this represents a significant shift in cost structures.

Overall, these changes signal substantial increases in employer expenditure, which will need to be factored into future plans, goals, and expectations for 2025 and beyond.

Possible effects on hiring and retaining talent

The National Insurance hike is expected to have significant implications beyond just increasing costs, potentially affecting how businesses approach hiring and retaining talent. Organisations may face several challenges, including:

  • Adjusting recruitment plans: Higher costs may reduce budgets for new hires, particularly for higher-salaried, full-time roles, impacting recruitment and growth strategies. Startups and SMEs may struggle to compete with larger firms in salary offerings, affecting their ability to attract in-demand tech professionals.
  • Revisiting pay structures and promotions: Additional costs from employer contributions and tax could make planned pay reviews and promotions difficult to manage. Companies may need to reconsider non-monetary benefits to maintain employee satisfaction and retention.
  • Increased use of flexible and contingent talent: Many organisations may turn to contractors and freelancers to manage costs while maintaining productivity. A greater focus on project-based hiring could emerge, with businesses scaling teams up or down as needed.
  • Reducing training and development budgets: Employers might cut back on training and development opportunities as part of cost-saving measures.
  • Potential layoffs: Some businesses, especially SMEs, may struggle to retain their workforce, prompting employees to seek opportunities elsewhere.
  • Re-evaluating financial strategies: Increasing employment costs will necessitate a reassessment of overall company budgets and operations.
  • Increasing consumer/client costs: Companies may need to raise prices to offset higher costs, potentially driving customers to seek more affordable alternatives.

How employers should respond to the changes in National Insurance

Grasping the challenges and implications of the employer National Insurance contributions is crucial for devising strategies to manage the growth of a business and its workforce. Effective planning and implementation of strategic workforce planning, talent recruitment and retention strategies can help minimise the impact of the NI increase, allowing organisations to continue growing and developing their workforce and business. Considering alternative employment models, such as nearshoring or outsourcing, can also help to optimise costs.  

By investing in talent solutions, companies can benefit from tailored strategies and plans that help them find, attract, hire, and retain the right people with the necessary skills to drive their business growth.

How will this affect tech businesses?

While these changes introduce financial pressure, they also offer businesses an opportunity to rethink hiring models, invest in workforce planning, and build more agile recruitment strategies. Tech companies can reassess their hiring plans, salaries and benefits packages, and explore . explore alternate resourcing models, such as outsourcing or adopting more flexible working arrangements to remain competitive.  By proactively adapting to these shifts, tech companies can maintain access to top-tier talent while managing costs effectively.

Darren Topping, Director of Enterprise Solutions, Insights & Partnerships at Impellam Group, said of the changes: "The Employers National Insurance increase has meant several implications for organisations, particularly from a hiring perspective, especially when combined with a cooling UK recruitment market. We have seen businesses discouraged from permanent hiring and instead we have seen an increase in use of contractors, gig workers, and outsourced providers to allow greater flexibility of cost. Interestingly, this is driving a more holistic total talent approach, where companies are including all types of workers as part of their overall workforce blend.

In addition, we have seen organisations focus much more heavily on strategic workforce planning in order to anticipate future skills needs and more accurate demand planning. Where the skillset is much in demand, we still see organisations pushing for permanent hires, however, despite the cooler market, these skills can still come at a premium cost, and we urge our clients to refresh salary and rate benchmarks, where there will also be opportunity to save cost."

 

Find out how we can help your business adjust to these upcoming changes here, and for more UK insights click here.