In April 2025, recruitment agencies across the UK will face a significant challenge: the rise in National Insurance (NI) contributions. For an industry already working with tight margins and intense competition, this legislative change could amplify existing pressures on profitability. However, with careful planning and strategic adjustments, agencies can mitigate the impact immediately and longer term. With Workwell Outsourcing Academy, we explore key areas to address, offering practical steps to prepare for and adapt to this financial shift and beyond.

The goal for Workwell Outsourcing is to enable agencies to focus on their core business of recruitment, whilst the key operational functions are handled by us. Here, we delve into direct and indirect points to consider as a recruitment leader.

1. Financial Forecasting: Absorbing or Offloading Costs

The NI increase necessitates a proactive approach to tighter financial planning. Agencies should consider the following first steps, working closely with their sales and finance function to reduce the impact on their gross profit.

Contract Implications
Do your terms of business allow you to pass on the NI increase to your clients? If not, consider renegotiating your terms to safeguard your margins. Open discussions with clients about shared responsibility for rising costs can foster transparency and partnership. We encourage agencies to have these conversations as soon as possible.

Evaluate Absorption vs. Passing Costs
Can your agency absorb the additional costs, or is it more feasible to adjust client charge rates? Work with your finance function and create detailed forecasts to understand the long-term implications of both options. Next steps would be to plan communications around this to your existing clients.

Candidate Engagement Type
How are you paying your contract workforce? Analyse whether setting candidates at a minimum threshold can help avoid NI contributions while still providing competitive pay.

Transferring candidates from PAYE to an Umbrella company arrangement can reduce your NI liability. If the candidate is PAYE with you, you’re the one covering the NI cost. Leveraging Umbrella arrangements should be considered. Check if this model works for your clients and candidates and ensure that you’re compliant with IR35 and related regulations whilst doing do. Workwell – IR35 Complete can help you with the compliance around IR35.

Employment Allowance
Starting in April, the Government’s Employment Allowance will increase from £5,000 to £10,500, allowing eligible employers to reduce their annual National Insurance liability. Make sure your agency is utilising this additional saving.

2. Adjusting Charge Rates and Communicating with Clients

For many agencies, passing on the NI increase to clients may be inevitable. The key is to approach this delicately:

Review and Adjust Charge Rates
Evaluate the potential impact of rate increases on client relationships. Benchmark rates against competitors to ensure your pricing remains fair and justifiable.

Transparent Communication
Notify clients well in advance about rate adjustments. Workwell Outsourcing suggest you provide at least a month’s notice which will continue to build that trust. We suggest having a conversation first to explain how the changes reflect external economic shifts rather than agency decisions before following up with something in writing. Workwell Outsourcing can consultatively advise you on what you need to say to your clients and how.

Position as a Strategic Partner
Use the rate discussion as an opportunity to highlight the value your agency provides. Emphasise efficiency, compliance, and quality as differentiators to justify your higher costs.

3. Reducing Internal Costs

Tight cost control is critical in mitigating the impact of rising NI contributions across your temporary recruitment business. Agencies can:

Outsource Functions
Focus internal resources on billable activities while outsourcing non-core tasks. Functions such as IT, payroll, vetting & compliance and admin, could be managed externally at a significantly lower cost and project managed under one roof.

Employee Incentives through Share Schemes
Although not an immediate fix, offering employees equity through share schemes can reduce cash-based rewards like regular salary increases and large bonuses. This can also act as an effective succession planning tool and to retain top billing talent and incentivise your teams.

4. Leveraging Funding for Financial Stability

The cash flow demands of NI increases may strain recruitment agencies, particularly those operating on thin margins. Funding solutions can provide relief:

Review Funding Arrangements
Are your current funding options the most cost-effective choice? Evaluate providers to ensure you’re not overpaying at a critical time. Agencies relying on partial or self-funding might consider switching from an existing model of 85% to 50% funding, or alternatively, if your profits are under pressure, as a result of these changes, you could look at a 100% funding model. This can free up working capital and support scalability for your agency.

Focus on Long-Term Savings
Securing the right financing terms now can reduce operational costs later. Work with funding advisors to ensure you’re getting the best deal for your cash flow needs. Workwell Outsourcing can offer Fund-As-You-Go, 100% Funding or International Funding. Book your free consultation on our options that can suit you.

5. Auditing Processes and Consolidating Technology

Along with the direct impact for agencies, there are existing indirect areas you should consider across your back-office function. This all starts with a thorough audit of current processes and systems. Here are actionable points to consider.

Process Efficiency
Streamlining operations can yield significant cost savings. Evaluate where inefficiencies exist, such as duplicate systems or manual processes with spreadsheets, and invest in technology that automates tasks like payroll, compliance tracking or candidate onboarding. Our back-office offering reduces errors by an average of 92% with our existing clients, saving agencies time. This can ensure the complexity of your business is streamlined and being look after by one accurate outsourced solution.

Technology Consolidation
Using multiple platforms for back-office functions? Consolidating these into a single, integrated system can reduce overheads, improve data accuracy and free up time for value-added billing and business development. Taking the headache out of these processes and systems through one provider, saves significant time and costs to your agency.

While the NI increase will present undeniable challenges, recruitment agencies can take proactive steps to reduce the financial burden. By auditing internal processes, consolidating technology, exploring financial strategies, and transparently communicating with clients, agencies can position themselves for resilience and growth in the face of change. Our steps and insights are not exclusive to legislation changes, these considered points can streamline, reduce costs by an average of 30% and encourage scalability at any time. Workwell Outsourcing is perfectly positioned to assist you in making these small steps to maximise big results.

Preparing now, rather than waiting until April 2025, will ensure your agency is ready. By treating these legislative changes as an opportunity to innovate and optimise, recruitment businesses can not only adapt but make the evolving marketplace work for them longer term.

For a consultative call on the upcoming changes, please contact Hannah Mollison on [email protected]

We recently hosted a visual podcast where we examined key strategies on how your agency can prepare for this change. Hannah Mollison, Sales Director at Workwell Outsourcing, Yves Bizimana, Managing Director and Mathew Jacques, Finance Director for Workwell Group examined several areas to address and prepare for this increase.

Listen to the recording here