What does the budget mean for recruitment agencies? 

Now that the fanfare around the budget announcement has settled, many UK recruitment agencies are asking a key question: how will these changes impact our bottom line? With adjustments to National Insurance, minimum wage, and new compliance rules for temporary worker payroll, the budget introduces both challenges and opportunities for agencies navigating the labour market. Here’s what recruitment agencies need to know.

National Insurance Hike: A Double-Edged Sword for Staffing

The headline measure in the budget is the increase in Employers’ National Insurance (NI) to 15%, alongside a reduction in the starting earnings threshold from £9,100 to £5,000. This change has a significant impact on labour costs for UK businesses, including recruitment agencies that hire and place both permanent and temporary workers.

To help offset this increase, the Employment Allowance has been raised to £10,500. For agencies with four or five employees, this cushion means they’re less likely to feel the full impact. However, larger agencies and those with high volumes of temporary workers could see increased payroll costs.

• Impact on Temporary Workers: Agencies that engage temporary workers under PAYE schemes will likely need to renegotiate their rates with clients to protect margins. These rate adjustments will need to be factored in by April of next year.
• Umbrella and Limited Company Contractors: For temporary workers contracted via umbrella companies or limited company setups, the increase in National Insurance won’t directly impact the agency.

Minimum Wage Increase: Protecting Margins Amid Rising Rates

The budget also announced an increase in the minimum wage to £12.21, a 6.7% jump planned to take effect in April 2025. This is positive news for workers but poses a challenge for agencies working with lower-paid employees.

• Renegotiating Client Contracts: Agencies will need to review and renegotiate their contracts with clients to adjust for the higher minimum wage, ensuring they can maintain their margins.

PAYE and NI Responsibility for Temps: New Compliance Requirements

In a notable shift, recruitment agencies will soon be responsible for PAYE and National Insurance (NI) for temporary workers, even if they’re working through umbrella companies. This move aims to enforce greater accountability, pushing agencies to ensure that tax and NI contributions are properly paid.

• Supply Chain Accountability: Agencies may face stricter requirements for verifying proof of payment and ensuring tax compliance within their supply chain. This could lead to closer scrutiny of vendors and partners, which could strengthen best practices in the industry.
• Eliminating Bad Operators: The policy change is intended to “squeeze out” less scrupulous operators, fostering greater transparency in the sector. While this is positive in principle, agencies should prepare for possible additional administrative burdens in proving compliance.

Other Budget Changes That May Indirectly Impact The Industry 

Aside from these direct measures, several other tax changes could indirectly affect the recruitment industry and the broader economic landscape:

• Air Passenger Duties & Lifestyle Taxes: Increases in Air Passenger Duties and vice taxes on tobacco, gambling, and vaping are likely to drive up the cost of business travel and reduce disposable income among some people. 
• Capital Gains and Inheritance Taxes: Modest increases in Capital Gains Tax (CGT) and changes to Inheritance Tax could impact business owners and investors. With CGT rising from 20% to 24%, business owners considering the sale of their agencies or investments may want to reassess the timing of these transactions.
• Corporation Tax Stay Steady: To be paid by businesses on taxable profits over £250,000, to stay at 25% until next election
• Bus Fares Potentially Impacting Temps: £2 cap on single bus fares in England to rise to £3 from January, outside London and Greater Manchester
• NHS Spending: Day-to-day spending on NHS and education in England to rise by 4.7% in real terms this year, before smaller rises next year

Preparing for the Road Ahead

In summary, the budget represents both challenges and incentives for recruitment agencies. The combination of higher National Insurance and minimum wage rates will increase labour costs, making it critical for agencies to carefully manage client relationships and renegotiate contracts to secure their margins.

The added responsibility for PAYE and NI on temporary workers pushes agencies to become even more diligent in compliance, setting a new bar for professionalism in the sector. Meanwhile, increases in lifestyle taxes and CGT will require business owners to stay proactive in their financial planning.

With the right strategies in place, recruitment agencies can not only weather these changes but also position themselves as trusted, compliant partners in an evolving market.

Need some help with your recruitment agency cash flow? Contact QUBA Solutions.