Small firms turn to virtual employees to combat National Insurance

Business owners are turning to virtual staff and contractors following the increase in employer National Insurance contributions. Small businesses struggling with the burden of higher costs since employer NICs were increased from 13.8 per cent to 15 per cent in April say they are less likely to employ younger, less experienced employees.

It comes as figures published today show the number of payrolled employees fell by 169,000 between June 2024 and June 2025, while the number of vacant roles is down 145,000 from a year ago. The biggest fall was among 25-34 year olds, down by 106,000 since July 2024. The Office for National Statistics said ‘some firms may not be recruiting new workers or replacing workers who have left’.

Supermarkets and hospitality chains have strongly criticised Labour’s decision to increase NICs at the same time as increasing the minimum wage. Now, small businesses say that the increase in NICs, alongside stubborn inflation and the higher cost of goods, is proving to be a heavy burden. Debbie Porter, managing director of Destination Digital Marketing is opting to hire contractors over new staff.

‘We’re moving to the use of more contractors following April’s series of additional costs added on to hiring employees on payroll. The risk and the cost of investing in a younger or more inexperienced person is now too much for our small business, so paying out a much higher freelance rate, but for someone who already knows how to do the job with no additional support required, is much more economically viable.’ Kate Allen, owner of Kingsbridge-based Finest Stays, has pressed pause on all hiring and is instead using a virtual assistant to help.

‘I’m fed up with paying more national insurance after yet another hit from the Labour government. The best thing we’ve done lately is trial a virtual assistant for a couple of months. No HR hassle, no holiday pay, cheaper than hiring someone full-time and the quality is excellent. It’s scalable for process-driven jobs and I’d recommend it to any business owner.’

Jonathan Moser, chief executive of property management firm Mo’Living is using a mixture of the two, with 12 contractors and virtual assistants. ‘The NI increase raised employment costs enough to tip the balance; full-time hires mean fixed overheads, while contractors offer flexibility, scalability and access to specialist skills without the commitment of salaries, holiday pay or sick leave.’

There are growing concerns that the Chancellor could raise taxes on businesses again in the Autumn Statement, as the worsening economic picture takes its toll on growth. While some business owners are trying their best to rein in costs, others may be forced to close entirely, with the hospitality industry facing the biggest casualties.

The number of pubs that declared insolvency jumped to 67 in April, their highest number since last July, following Reeves’ tax raid. ‘The early signs are that the tax and minimum wage hikes which took effect in April are already tipping some struggling pubs over the edge,’ said Matt Howard, head of the insolvency and recovery team at Price Bailey. Are you a business owner? Have you changed how you’re hiring thanks to the NI changes? Get in touch: editor@thisismoney.co.uk.