The Impact Of Employer National Insurance Increases On The IT Sector: A Pragmatic Analysis

In October 2024, The Chancellor of the Exchequer Rachel Reeves announced rate increases to Employer National Insurance Contributions (NICs) during the Labour Government’s first Autumn Budget. These changes came into force two months ago on the 6^th of April 2025, as such, we now have a better understanding on how these increased business taxes have affected businesses and the IT sector as a whole.

This analysis will walk through the details of these changes and the reasons given for why employer NICs rose, and then how it has affected different areas of the IT sector, including hiring, company growth and workforce planning.

What does this change to Employer National Insurance Contributions include?

The three changes to the employer NICs include:

• An increase in Secondary Class 1 NICs from 13.8% to 15%, the highest it has ever been outside of a temporary rise in April 2022 when it was 15.05% for a few months.
• A cut in the secondary threshold from £9,100 per year to £5,000 per year, which is the point at which employers become liable to pay NICs on employee earnings.
• Previously, businesses with employer NICs bills of £100,000 or less could deduct £5,000 from their employer NICs. Now, all eligible employers with employer NICs bills can deduct £10,500 from their total employer NICs.

According to HMRC’s impact assessments, around 250,000 businesses will see their employer NICs decrease, with an estimated 800,000+ seeing no change, but over 900,000 will see it rise. In conversations with our clients, many are seeing their employer NICs go up, some by significant amounts, which are affecting their budgets and operations.

Reasons behind the change in Employer National Insurance Contributions

The main reason provided by the Government for these NIC changes is to raise revenue. The Government forecasts that these rates will add between £23.8 billion and £25.7 billion to the Budget each year between 2025/6 to 2029/30.

The Government have argued that these were measures were necessary due to:

• A reported £22 billion black hole in the budget following the previous government
• Greater funding needed to pay for public services and welfare benefits
• A promised additional £22.6 billion day-to-day spending for the Department of Health and Social Care

In truth, many of us were predicting there to be rising costs with the new Government, such as through increasing taxes. However, whilst this new rate aimed to just affect businesses, it has had an impact on nearly everyone, including ordinary IT workers.

How has it impacted the IT sector?

We have seen various consequences of the employer NICs changes. These outcomes are far-reaching, affecting businesses, permanent employees, contractors and the unemployed alike.

The IT sector: Permanent employees

Latest statistics from the BBC have found that the number of available jobs fell by 63,000 between March and May this year. In our experience as specialist IT recruiters, hiring for permanent employees within the IT sector hasn’t seen a significant drop. This is due to the IT sector growing, with many company’s needing IT resources to lead projects that have been on hold since 2020. However, the market has been relatively flat which we predict will continue until the end of this year.

Our team have also found that there has been a significant rise in fixed-term contracts, with businesses unsure if they can budget for a permanent member of staff in light of these employer NIC changes and potential effects of the Employment Rights Bill. We have seen an 18% increase in our contract recruitment in the first half of this year. This rise in contract recruitment might indicate that businesses are coming to the conclusion that permanent hires are too expensive, due to these employer costs.

Additionally, we have seen many clients and businesses decide either to reduce their headcount or not replace employees who leave. For example, a Birmingham-based charity we work with was hit with predictions of a £174k additional annual employee NICs bill. Instead of trying to cut costs elsewhere to raise the money, they decided not to replace their 4 exiting employees, creating job losses at a time we need to see job creation. Many businesses are taking on this strategy, and this will have a knock-on effect on productivity and on the stress levels of the co-workers who will need to take on more responsibilities, increasing chances of sick days and burnout.

The IT sector: Contractors

Whilst permanent employees will not feel these changes directly, contractors who work through umbrella agencies will. Contractors who are employed by umbrella agencies will be shouldering the costs of these increasing employer costs. In our conversations with umbrella agencies, they have estimated that the rise is costing contractors an average of £17 a week.

By our estimations, 60% of our contractors work Inside IR35 and through an umbrella agency. Since the IR35 Off Payroll Working rule changes in 2019 and 2021, more companies have been hesitant to list their roles as Outside IR35, with many contractors having to take on more Inside IR35 work. This rise in costs that are deductible from contractor pay, will unlikely lead to an increase in day rates to subsidise this move, especially in roles that have a high number of applicants.

The IT sector: Businesses

For years, businesses in the UK have been struggling. As borrowing was cheap, a number took out CBILS loans during the pandemic in order to stay afloat and some still haven’t been able to pay these off due to the host of macroeconomic issues the country has been facing. The truth is, for many businesses, they have had vastly reduced profits and very tight budgets, which do not accommodate these costs.

The rising costs that businesses have been facing in recent years, including energy bills, salaries and materials, have caused far-reaching consequences. From increased redundancies to reduced hiring and salary freezes, these will all affect a company’s opportunities for growth and their ability to remain competitive. We have also seen any profits taxed at 25%, increased from 19%, reducing funds for investment.

The IT sector: Unemployment

Between February to April, the ONS reported that unemployment rose to 4.6%, with more people out of work than the previous period. Whilst, the new employer NICs had not come into force yet, it was these few months before the April 2025 start date that businesses started acting on these additional costs. The good news is most companies will have done what they needed to do to restructure before the April start date, so we are unlikely to see another significant further uptick in unemployment rates.

Overall, the rise in employer NICs has had a large impact on the IT sector, where many businesses were already struggling post-covid. However, it’s not all doom and gloom as growth is still expected in the sector, with IT upgrades remaining a priority for many businesses this year. This will largely be felt in the contract IT market, with companies starting to choose contractors over permanent employees, due to these rising employer costs. Hopefully, as the IT market does seem to be picking up this year, these employer NICs won’t have too much of a negative affect on the sector’s ability to grow.

VIQU IT is an award-winning IT recruitment agency, if your business is looking to hire tech professionals that will help your business succeed, get in touch with us here.