In April 2025, businesses across the UK will face higher employment costs as National Insurance (NI) contributions for employers increase. This change is expected to hit businesses of all sizes, particularly those with large permanent workforces. While this poses a challenge, temporary and contract workers offer an effective solution for businesses to control costs while maintaining staffing flexibility. Lets have a look at the issue itself and how we can help mitigate the costs.
The National Insurance hike will raise the contributions employers make for each employee. For businesses with significant permanent staff, this represents a substantial rise in operational costs. Larger businesses like Tesco and Sainsbury’s, which employ thousands, will be anticipating millions in additional payroll expenses. Sainsbury's has publicly states that they estimate an additional £140 million in costs due to the NIC increase. In response, they plan to cut 3,000 jobs, including the closure of some in-store cafés and a reduction in senior management roles by up to 20%. Meanwhile, small and medium-sized enterprises (SMEs) all over the country with tighter margins face proportionally significant financial pressures. Some small businesses have even started to make decisions about closing as there just isn't a way to cover the increased costs.
• Each employee earns: £30,000 annually
• Current NI employer cost (13.8%): £414,000 per year
• New NI employer cost (15.1%): £453,000 per year
• Total increase in annual NI contributions: £39,000
This means a mid-sized business will need to absorb nearly £40,000 in extra employment costs due to the NI rise.
• Each employee earns: £25,000 annually
• Current NI employer cost (13.8%): £69,000 per year
• New NI employer cost (15.1%): £75,500 per year
• Total increase in annual NI contributions: £6,500
For a smaller business, the impact is still significant – an additional £6,500 per year just in National Insurance increases, which could be a major hit to their bottom line, as proportionally it will be subtracted from a smaller profit in general. Smaller businesses may also not have the same ability to absorb costs by way of increasing prices or cutting staff, as it could have an even bigger impact on their ability to make a profit and have the reverse affect.
We don't have a magic fix for these cost increases, however we think for businesses looking to cut costs, without losing productivity and output, temporary staffing could be a great way to tackle short term requirements without the additional costs of permanent staff. Temporary and contract workers help mitigate these costs in two key ways:
Employing temporary workers allows businesses to scale their workforce based on actual demand, avoiding unnecessary permanent hires. For example, a logistics company can bring in additional HGV drivers only during peak times, rather than employing them year-round. This approach prevents overstaffing and reduces the burden of higher NI contributions for unused capacity.
Employers typically have reduced NI liabilities for temporary or contract staff, especially if they are self-employed contractors or hired through an agency. For self-employed individuals, employers don’t pay NI contributions, while for agency workers, the agency often takes on this responsibility.
In both scenarios, businesses benefit from cost control while still filling essential roles.
Tesco, with over 300,000 employees, has projected millions in additional payroll costs due to the NI hike. Reports indicate that such costs will force major businesses to evaluate staffing models and explore alternatives, including the increased use of temporary workers during seasonal spikes like Christmas or summer sales.
A small logistics company with 50 staff faces an estimated increase in annual costs of £50,000. By switching to a flexible staffing model, employing contract HGV drivers only during demand surges, the business could save significantly by reducing even by just 2 permanent hires and spreading costs more effectively.
A mid-sized retailer with 200 employees projects a rise in operational costs by £200,000 annually. They plan to adopt a mix of agency workers and temporary contracts for customer service and warehousing roles during peak trading periods, saving an estimated 30% compared to a fully permanent workforce.
At Prism 7 Resourcing, we specialise in connecting businesses with skilled temporary and contract workers across industries, including logistics, warehousing, transport, and more. Here’s how we can support your business:
The National Insurance increase is just one of many challenges UK businesses will face in 2025. However, by embracing temporary and contract employment, businesses can stay competitive, agile, and cost-efficient.
If you’re ready to explore how temporary staffing can work for your business, contact Prism 7 Resourcing today.
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