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01709 327 215 | info@branagans.co.uk
June 2025 | How employer NICs changes could reduce umbrella worker pay in 2025
Umbrella companies are commonly used by recruitment agencies to employ workers on temporary contracts in sectors such as IT, healthcare, construction, and education. In most cases, the contractor or temporary worker carries out work for a client, who pays the recruitment agency. The agency then passes the payment to the umbrella company, which pays the worker after deducting fees, tax, and National Insurance contributions (NICs).
However, if you are one of the people working in this way, then the changes to employer NICs from April 6, 2025, mean that you could end up having less money in your pocket thanks to a quirk in the way this can impact individuals, rather than employers.
From April 6, 2025, NICs increased by 1.2% to 15% and the level at which employers begin to pay it fell from £9,100 per year to £5,000 per year. This has already caused problems for many businesses that are facing bills much higher than they had expected. These costs are borne solely by the employer in most cases, and employees should not see any impact on their salary. But with umbrella companies, the position is likely to be different, according to the Low Incomes Tax Reform Group (LITRG).
In this case, it could be the employee being paid by the umbrella company that could face paying this bill, as NICs is often deducted from the worker's agreed rate.
WHY WILL THIS AFFECT THE WORKER AND NOT THE EMPLOYER?
Agencies are paid by companies that ask them to find employees for them, and these fees are often paid to an umbrella company that will then pass that money onto the worker for the period of time they are with the company.
Unless the recruitment agency's client is providing the additional amount of money to cover the rise in NICs, that money is most likely going to come out of the wage that the agency is sending to the worker. This means you will have less money in your pocket, even though this NICs change was not supposed to affect employees.
The difference in the pay could be considerable. For example:
Someone starts a job in March 2025 with an assignment rate of £18 an hour. If they work 37.5 hours a week, this translates into gross pay for them of £519.37. The employment costs are £132.81. In April 2025, the assignment rate is still £18 an hour. But the employment costs are now £145.32 due to the increased employer NIC rate. This means the person's gross pay will be £506.77.
Source: LITRG
You may think that if you have a contract with the agency, you have a specific rate of pay. But in many of these contracts your rate of pay can be changed, providing you are being paid the minimum wage.
WHAT CAN I DO ABOUT THIS?
If you're getting less money because of this increase in NICs, then you could ask your umbrella company to renegotiate the overall rate with your agency and/or end client, so the increase in NICs is paid by the company you work for, not you. You may not be able to do this, but it is worth asking.
If not, then you should look at the guidance created by HMRC with input from the LITRG. This outlines how umbrella companies can positively contribute to the temporary labour market.
These actions are split into two sections -
- Umbrella companies should be run by fit and proper people.
- Umbrella companies should be financially viable.
- Umbrella companies must follow the statutory requirements that apply to all employers.
- Umbrella companies must accurately operate the payroll for their employees.
- Umbrella companies should compete based on lawful practices.
- Umbrella companies should be clear, open and honest with the information they provide their employees.
- Umbrella companies should provide employee care.
- Umbrella companies should provide recruitment agencies with the information they need to meet their legal obligations.
Source: LITRG
HMRC is expected to begin tightening compliance around how employer NICs is charged in these cases. But if the umbrella company you're working with isn't complying with this guidance, then you may want to consider not working with them. You can find out more about the pay you would receive with the Umbrella Company Pay Tool, which is on Gov.uk.
WE CAN HELP YOU MEET YOUR OBLIGATIONS
If you think you might be affected by these changes, then please get in touch on 01709 327 215 or email info@branagans.co.uk and we would be happy to give you the guidance you need.
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