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Impact of the 2024 Budget on the UK Hiring Market

01

Stephen Brown

​In the recent Autumn Budget 2024, Chancellor Rachel Reeves announced significant changes that will impact UK employers starting April 2025. Two key changes include an increase in employer National Insurance (NI) contributions from 13.8% to 15% and a rise in the National Living Wage from £11.44 to £12.21 per hour.

These adjustments are poised to have several implications for the hiring market.

Increased Employer National Insurance Contributions

The increase in employer NI contributions by 1.2 percentage points to 15% is an actual increase to payroll taxes of over 8%!

This change means that businesses will face higher costs for each employee, which could lead to several potential outcomes:

Cost Management Strategies: Employers may need to reassess their budgets and find ways to manage these additional costs. This could include reducing other expenses, increasing prices for goods and services, or finding efficiencies within their operations.

Hiring Decisions: The higher NI contributions might make employers more cautious about expanding their workforce. Some businesses may delay hiring new staff, opt for part-time or temporary workers to mitigate the increased costs.

Impact on Small Businesses: Smaller businesses, which often operate with tighter margins, may feel the impact more acutely. They might need to explore creative solutions to maintain profitability, such as outsourcing rather than directly employing for certain activities or projects or investing in technology such as AI to improve productivity.

Rise in National Living Wage

The increase in the National Living Wage to £12.21 per hour represents a 6.7% rise. This change aims to improve living standards for workers but also brings additional financial considerations for employers:

Wage Bill Increases: Employers will need to adjust their payrolls to accommodate the higher wages. This could lead to increased overall wage bills, particularly for businesses with a large number of minimum wage employees. As we have previously witnessed, this increase also has a ripple effect throughout the pay structure as more skilled workers demand higher wages to differentiate themselves.

Retention and Recruitment: On the positive side, higher wages can improve employee retention and attract more candidates. Workers may feel more valued and motivated, potentially leading to higher productivity and lower turnover rates. It is also expected to increase candidate availability for those businesses still recruiting, with less profitable businesses in competition for talent are forced to freeze hiring plans or shed employees.

Sector-Specific Impacts: Industries with a high proportion of low-wage workers, such as retail, distribution and hospitality, may experience more significant impacts. These sectors might need to adjust their pricing strategies or find other ways to absorb the increased wage costs.

Strategic Considerations for Employers

Given these changes, employers should consider several strategic actions:

Review Compensation Structures: Assess current pay scales and make necessary adjustments to comply with the new wage requirements while maintaining internal equity.

Enhance Efficiency: Look for ways to improve operational efficiency to offset the increased costs. This could involve investing in technology, streamlining processes, or upskilling and cross skilling employees.

Financial Planning: Revisit financial plans and forecasts to account for the higher NI contributions and wage increases. This will help in making informed decisions about hiring and other business investments.

Conclusion

The 2024 Budget introduces significant changes that will affect the UK hiring market, which was already advertising 11% fewer jobs than last year, with 59% of recruiters expecting to see a decrease in hiring activity now NI and NLW have increased.

While these measures aim to improve public finances and living standards, they also present challenges for employers. By proactively addressing these changes and looking for the opportunities they create, businesses can navigate the new landscape and continue to thrive.

Euro Projects Recruitment continues to support its clients by adding as much value to our relationship with you as possible during these challenging times, including:

  • Outsourced Recruitment and HR Services

  • Free to attend seminars and webinars

  • Temporary, contract and interim recruitment for resourcing of short-term projects