What the UK employment figures mean for contractors

As we move into 2025, the echoes of Labour’s first Budget in over a decade are still resonating across businesses and sectors throughout the UK.

Delivered in 2024, the Budget laid out sweeping measures aimed at stimulating growth, but it also introduced increased costs for employers that continue to affect workforce strategies. With businesses still grappling with the rise in Employer National Insurance Contributions (NICs), ongoing challenges around productivity, and the pressing need to manage costs, one key shift has become increasingly clear: the demand for contractors could be on the rise.

Official figures show that unemployment has risen to 4.4% in the three months from November 2024, with pay growth rising 5.6%. Vacancies are also falling compared to mid-year levels, indicating that businesses have paused their hiring.

Why contractors could see an uptick

One potential challenge is the increase in Employer National Insurance Contributions (NICs), which will rise from 13.8% to 15% in April 2025. The threshold at which NICs become chargeable will also drop from £9,100 to £5,000 per employee.

For businesses, this means additional costs of over £1,000 per employee, on top of increased minimum wage rates and higher pension contributions. Combined, these measures are forecast to make hiring employees significantly more expensive, particularly for larger employers.

At Morson, we’ve already seen clients questioning how best to navigate these pressures while maintaining access to the skills they need to remain competitive. The result may be an increased reliance on contractors, offering flexibility and specialist expertise without the same long-term financial commitments.

Supporting a flexible workforce

Contractors have long played a vital role in delivering key projects across sectors such as engineering, technology, rail, and construction. With significant increases in employment costs, more businesses may turn to these skilled professionals to fill short-term gaps, support project delivery, or access niche expertise.

However, it’s essential to remember that engaging contractors comes with its own complexities, particularly in light of IR35 legislation. Businesses must ensure compliance with these regulations to avoid risk while benefiting from the flexibility contractors provide.

As Adrian Adair, Chief Operating Officer at Morson, explains: “Contractors are a cornerstone of the UK economy, enabling organisations to remain agile and competitive. By engaging with compliant partners, businesses can ensure they access the skills they need while meeting their obligations under IR35.”

What this means for contractors

For contractors, the Budget has highlighted several key areas to consider:

• Employer NICs and umbrella companies: Contractors working via umbrella companies may face reduced take-home pay as higher NICs are factored into their rates.
• Business taxation: The rise in Capital Gains Tax and changes to thresholds for small businesses could also affect contractors operating through their own limited companies.
• Making tax digital: The extension of digital tax requirements to self-employed individuals earning over £20,000 will add to administrative responsibilities.

Despite these challenges, contractors remain uniquely positioned to thrive in an evolving economic landscape. Their ability to offer targeted expertise without the long-term commitments of traditional employment will likely be in higher demand as businesses manage costs and navigate uncertain times.

The Budget has certainly posed challenges for businesses across the UK, but it has also reinforced the importance of having a flexible, adaptable workforce. At Morson, we’re proud to support contractors and the organisations that rely on them, ensuring they have the tools, knowledge, and compliance support needed to succeed. As the UK economy continues to evolve, contractors will undoubtedly play a pivotal role in driving innovation, delivering critical projects, and maintaining business agility.

If your organisation is considering how to adapt to these changes, Morson’s specialist teams are on hand to provide tailored advice and workforce solutions. Get in touch with us