April 2025 –
Changes to Employer National Insurance that took effect this month are reshaping hiring patterns across UK businesses, with companies increasingly turning to outside IR35 contractors whilst umbrella workers face significant pay cuts.
Employer National Insurance. What Changed in April 2025?
There have been two significant changes to
Employer National Insurance (NI) recently, both of which came into force in April 2025.
Employer NI Rate Increase
Employer NI rate increased from 13.8% to 15%, which marks the highest employer NI rate in over a decade. While this might seem like a small percentage, especially when it's per employee, the impact is substantial for large employers with significant payroll costs, and sectors with high staffing needs. It's also a big deal for businesses that are dealing with tight margins or slow growth, quickly eating into small budgets.
Employer NI Threshold Reduction
Along with employer NI rate increasing, the employer NI threshold also changed, decreasing from £9,000 to £5,000. Previously, employers only began paying NI when an employee earned over £9,100 annually. Now, they begin paying once earnings exceed £5,000. This means more employees now trigger employer NI payments, including part-time and entry level roles, and more roles now incur additional employer costs.
NI Changes Have Spurred On a Shift in Hiring Behaviour
The employer NI increase directly affects employees including umbrella employees - but not contractors operating through a Personal Service Company, as they are genuinely outside IR35. This makes
outside IR35 contractors more attractive than ever to hiring businesses. That's because there's no employer NI, no pension contributions, no statutory costs - such as sick pay and holiday pay - and less administrative burden, compared to workers deemed
inside IR35. For many businesses, the cost difference between hiring a permanent employee and a contractor who's outside IR35 is now significantly wider. As a result, companies are increasingly looking to hire outside IR35 contractors to avoid the increased NI burden.
IT Contractor Demand Reaches New Highs
One of the clearest indicators of the NI policy's impact is the rebound in contractor demand, especially in technology and digital transformation. In May 2025, IT contractor demand reached the highest level since November 2023, with temporary IT billings jumped to the highest score of 48.0,
signaling strong and improving market conditions. The combination of higher employer payroll costs and ongoing technical resourcing needs has created a perfect environment for contractors to flourish.
Umbrella Workers Face Reduced Take Home Pay
Umbrella company employees who are
treated as employees for tax purposes are being hit hardest. As employer NI must be accounted for by the end client, many umbrella companies and agencies are passing the increased NI costs to contractors. This is reducing take-home pay, and some roles that were previously viable through umbrella models are now facing reduced attraction or competitiveness.
With end clients unable or unwilling to increase rates, the cost increase is filtering down to the worker, not the employer. This has a huge ripple effect with many umbrella workers receiving lower weekly or monthly pay despite unchanged day rates. There's also the hurdle of clients facing
greater scrutiny on IR35 status decisions from workers themselves, who aren't willing to accept reduced take-home pay if they don't need to.
What Contractors Should Do Now
The two-year window before these changes take full effect is preparation time. Contractors currently working with businesses near the threshold boundaries should start getting ready. That means understanding how to assess your own IR35 status properly. Reviewing your contracts and working practices. Keeping detailed records that demonstrate genuine self-employment. Building relationships with specialists who can help when client-led assessments stop.
Many contractors have become comfortable with clients handling IR35 assessments since 2021. That comfort won't last. By April 2027, thousands will need to manage their own status again. Starting that preparation now means you're not scrambling when the transition happens. The changes represent the most significant shift in corporate classification in years. For contractors, the practical impact begins in 2027, but the time to prepare is now.
