The past year has seen sweeping legislative changes that are reshaping the way businesses engage contractors and freelancers. As we move into the new financial year, the impact of the Government’s policies on off-payroll working, umbrella company regulation, and employment rights is becoming clearer. This creates both challenges and opportunities for businesses that HR leaders need to be ready for.
Here are three key changes that you need to prepare for now:
- Employer NICs increase: the immediate cost challenge
One of the most pressing changes HR teams must navigate is the rise in employer National Insurance Contributions (NICs), which takes effect from 6 April 2025.
The 1.2% increase, alongside a lower qualification threshold, is set to increase hiring costs for businesses engaging off-payroll workers inside IR35. To avoid this change eroding take home pay, contractors will likely request rate increases to maintain their earnings – putting pressure on HR teams and recruiters to renegotiate terms. Some may just seek off-payroll jobs outside IR35.
This offers businesses an opportunity to reassess IR35 policies to explore whether contracts can be structured as outside IR35. An initial step on this journey would be to commission an IR35 assessment to determine which contracts can be transitioned to personal service companies (PSCs) while maintaining compliance. Now that compliance risks have eased, contracts outside IR35 carry fewer risks that when initially introduced, making this an attractive strategy in the wake of increasing NICs.
For contractors engaged via recruitment partners and umbrella companies, it’s important to have open and honest conversations about the NIC increase to discuss where take home pay may be impacted or where rate increases may be possible. This ensures that all parties are aware and that the contractor can also be updated to prevent any misunderstanding.
- Umbrella company regulation: a compliance priority
Looking further ahead to April 2026, new legislation will regulate the umbrella company market, aiming to clamp down on tax avoidance and recover an estimated £500m in lost revenue. The specifics of the legislation have yet to be set out and a consultation on the legislation (not the policy position) has been promised, so whilst there may be an opportunity to shape the application of the new rules there may be little chance to avoid or fully prepare for any unintended consequences.
That said, if an umbrella is found to be non-compliant and no recruitment agency is in the supply chain, liability for non-compliance is expected to now shift to the end hirer. For this reason, it’s vital for hirers to develop a preferred supplier list of compliant umbrella companies to help mitigate any potential risks.
By reviewing all contractor supply chains now, HR professionals can look to ensure that all of the umbrella companies engaged are compliant, so that the business is not exposed to any unexpected liabilities when the new regulation comes in.
- Employment Rights Bill: the future of flexible work
The Government’s Employment Rights Bill, introduced in late 2024, proposes several reforms that could impact how businesses engage contractors and freelancers. Many of these impacts would stem from potentially unexpected consequences of the Government’s aim to prevent workers from exploitation.
For example, the right to guaranteed hours – which is designed to protect workers – could remove zero-hours contracts, which are widely used in the contractor market due to their flexibility.
Added to this is the potential removal of ‘worker’ status. While not included in the bill, this change would aim to align employment and tax status – creating additional complexities for businesses.
For now, it’s important for businesses to feed into consultations on the proposed changes via relevant trade bodies and associations to help shape the final legislation. HR professionals should also look to assess their workforce structures to get a firm understanding of how the changes could impact on contractor engagement and develop contingency plans to maintain workforce flexibility and compliance with the evolving legislation.
Preparing for the year ahead
2025 is set to be a defining year for the flexible workforce, with the evolution of new legislation that will impact its future. Those who prepare early and engage with forthcoming consultations will be best positioned to adapt without disrupting operations or losing access to vital talent.
Now is the time to review your policies and seek specialist advice to navigate these changes with confidence.
By reassessing contractor engagement strategies, ensuring compliance, and staying ahead of regulatory changes, HR leaders can protect their businesses while maintaining the workforce flexibility that they need to succeed.
