Last month’s budget saw announcements of increases to minimum wage and employers’ National Insurance. This will have a direct impact on the costs of supplying agency workers.

The Chancellor confirmed that employers’ National Insurance is increasing to 15% from April 2025. This is accompanied by a reduction in the lower pay threshold from which employer National Insurance is paid. At the same time, the adult rate for minimum wage will increase to £12.21 per hour and the rate for younger workers will increase to £10 per hour.  This will increase supply costs for many recruiters. What steps can be taken now?

Review assignments, costs and contracts

Businesses should start reviewing assignments, costs and contracts, to establish whether increases can be applied automatically or if other steps or agreements will be required.

If Lawspeed client contracts are in place, then this is already covered, and agencies will be entitled to increase their charges. However, in other cases, such as when working to a client’s own terms, costs may not necessarily be automatically passed on. Consider also any new contracts or assignments being entered into which may extend beyond April 2025 and therefore be affected by the changes.

Inform Clients

Agencies should speak with clients as early as possible, to notify them of increases to costs, where provided in contracts, or start a conversation where negotiation may be required. They should appreciate that these costs will need to be passed on, but some may expect that this cost increase be shared or worse, that the agency should absorb the full increase.

If increased costs cannot be passed on, agencies need to understand any termination and notice provisions and whether transfer fees are payable if the client engages directly or wants to use an alternative supplier who will operate to the stated costs.

Factor in Umbrellas

The same increases will apply to umbrella companies, and they are therefore likely to seek higher rates.  Agencies should be aware of potential risks, particularly increased costs may result in reduced commission rates, and this could result in umbrella workers receiving lower rates than are required under the AWR. There may also be a temptation to engage umbrellas who operate tax avoidance schemes, to avoid employer NIs. The use of such schemes can expose agencies to reputational and financial risk.

Key Information Documents (KIDs)

Don’t forget to update KIDs to reflect the new rates and pay calculations.

Lawspeed can help with a review of existing or new terms with fixed price options and/or advice on all aspects of recruitment contracts and compliance, including the AWR and the Conduct Regulations. For more information contact us on 01273 236 236 or email us at [email protected].