"We'd love to hire more people, but it's becoming expensive and complicated"

There's a conversation we keep having with business owners across the United Kingdom. They want to grow their teams, but employing someone in the UK is becoming more expensive and more complicated.

Whether it's the increase in employer National Insurance contributions, the cost of salaries, growing employment obligations or the difficulty of recruiting experienced technical professionals, UK business owners are facing a challenging employment environment. And the research suggests these concerns are far from isolated.

Sources: British Chambers of Commerce, October 2026; CBI/Pertemps Employment Trends Survey, October 2026.

Even with a softer labour market and fewer businesses expanding, employers are still struggling to secure the skills they need.

For Managed Service Providers (MSPs), Technology Service Providers (TSPs) and other IT businesses, that's a particular problem. Technical talent is expensive. Customers expect increasingly sophisticated services. Cybersecurity requirements keep evolving. And the margins available to deliver those services remain under pressure.

Simply adding another locally employed engineer every time the business grows is becoming harder to sustain.

So what's driving the rising cost of hiring employees in the UK, and what can employers do about it?

1. Employer National Insurance: the hidden cost of hiring has increased significantly

One of the biggest recent changes for employers is the increase in employer National Insurance contributions (NICs). From April 2025, the government made two important changes, both still in effect for the 2026–27 tax year:

• The standard employer rate rose from 13.8% to 15%
• The Secondary Threshold, above which most employers start paying, fell from £9,100 to £5,000

On paper, 1.2 percentage points doesn't sound like much. Combined with the lower threshold, the impact is considerably greater, because more of every salary is now taxed, at a higher rate. Here's how it plays out on a Level 2 Support Engineer earning £40,000:

For an MSP employing 20 engineers on similar salaries, that's about £19,700 a year in additional employer NIC before allowances and reliefs: almost £20,000 of extra expenditure without employing another engineer, raising salaries or generating a single pound of additional revenue.

Illustrative. Standard Class 1 employer NIC on salary only; excludes benefits in kind, other reliefs and employees with different NIC categories. Rates and thresholds from GOV.UK.

The increased Employment Allowance of £10,500 helps eligible businesses offset their employer NIC. But not every employer qualifies, and the allowance doesn't remove the ongoing increase for larger payrolls. For employers already working on tight margins, these costs matter. And National Insurance is only one part of the equation.

2. Rising wages are increasing the cost of talent across the workforce

The UK's National Living Wage rose to £12.71 an hour in April 2026, up from £12.21 the year before. For employees aged 18–20, the statutory minimum rose to £10.85 an hour.

Experienced IT engineers usually earn well above minimum wage, but these increases still shape salary expectations. When entry-level wages rise, employers face pressure to maintain sensible differences between junior, intermediate and senior roles. For an MSP, that can mean raising salaries across several positions to keep experienced people and stay competitive.

It's not only about statutory increases. Experienced Level 2 and Level 3 engineers, cybersecurity specialists, cloud engineers and automation professionals remain in demand. Businesses increasingly need people who understand not just technology, but customer environments, security obligations, service delivery processes and commercial outcomes. That combination isn't easy to find.

Salary budgets are rising while the need to deliver services profitably stays exactly the same.

3. Employment law reforms are increasing complexity and employer obligations

The Employment Rights Act 2025 introduces significant changes to employment protections and workplace obligations, phased through 2026 and 2027. The reforms are intended to strengthen employee rights and improve workplace conditions, but they also require businesses to review contracts, HR policies, management practices, employment processes and potential liabilities.

1. 6 April 2026

   Statutory Sick Pay from day one

   SSP is generally payable from the first full day of qualifying sickness absence, not after three waiting days. The Lower Earnings Limit has gone, extending eligibility to more employees. The weekly rate is the lower of £123.25 or 80% of average weekly earnings.

2. October 2026

   Stronger harassment prevention duties

   Strengthened responsibilities to prevent harassment, including obligations relating to harassment by third parties.

3. 1 January 2027

   Unfair dismissal after six months

   The qualifying period for ordinary unfair dismissal protection is scheduled to fall from two years to six months, and the cap on compensatory awards is due to be removed.

4. Through 2026–27

   Longer Employment Tribunal time limits

   Extended time limits for bringing Employment Tribunal claims, alongside the wider phased implementation.

What day-one sick pay means in practice

Take an engineer earning £40,000 who is off sick for three days. At 80% of their average weekly earnings they're above the £123.25 cap, so SSP is £24.65 a day across five qualifying days:

Illustrative statutory amount only; many employers pay contractual sick pay above SSP. Rate from GOV.UK.

For an MSP running a service desk with contractual response times, an unexpected absence can also mean overtime, temporary cover or redistributing tickets.

The unfair dismissal change doesn't stop employers addressing poor performance or dismissing people for legitimate reasons. It does place more weight on effective recruitment, documented performance expectations, probation management and fair processes.

Well-resourced organisations with dedicated HR and legal teams can fold these changes into existing compliance processes. For a smaller MSP with 10 or 20 employees, the burden is far more personal: the founder or Managing Director may be the one understanding the legislation, updating policies, managing people and keeping the business compliant. Every hour spent there is an hour not spent on customers, business development or service delivery.

The issue isn't whether employees deserve these protections. They absolutely do. It's making sure businesses can meet them and stay commercially sustainable.

4. The real cost of an employee is considerably more than their salary

When working out the cost of hiring employees in the UK, one of the most common budgeting mistakes is calculating employment costs mainly from salaries. Salary is only the starting point. UK employers also pay National Insurance, workplace pension contributions, paid annual leave, sickness absence, recruitment, training and equipment.

Under auto-enrolment, employers generally contribute at least 3% of qualifying earnings for eligible employees, and most workers are entitled to 5.6 weeks of paid annual leave. Those are important benefits, but they belong in the true cost of service delivery. Try it for one role:

Assumes standard employer NIC, minimum pension contributions of 3% on qualifying earnings between £6,240 and £40,000, and no reliefs. Annual leave is already included in the salary rather than added again. Productive hours: contracted hours less 5.6 weeks' leave, at the productive share shown. See pension and holiday rules on GOV.UK.

That engineer costs more than £46,000 before recruitment fees, laptops, software licences, training, sick leave cover, management and other overheads. Assume another £5,000 a year for those and the total is about £51,263. Now multiply by a team:

For an MSP there's another consideration: billable productivity. An engineer may be contracted for 40 hours a week, but holidays, internal meetings, training, administration and sick leave all reduce the hours available for productive, customer-facing work.

The question isn't "How much does this engineer earn?" It's "How much do they cost per productive hour, and are we earning enough gross margin from the work they do?"

Understanding that difference is fundamental to a profitable, scalable service delivery business. (For benchmarks, see what a good gross margin looks like for an MSP.)

5. The UK skills shortage hasn't disappeared

Given the higher cost of employment, you might assume recruiting has become easier as businesses slow their hiring. The evidence suggests it's more complicated.

Sources: Office for National Statistics; British Chambers of Commerce, October 2026.

That's an important distinction. The UK may have weaker overall hiring demand, but individual businesses can still struggle to recruit people with the capabilities they need.

For MSPs, technical hiring is especially hard because finding a qualified engineer is only part of it. You often need a combination of Microsoft 365, Azure, networking, cybersecurity, automation and customer service skills. One candidate has strong certifications but little commercial MSP experience; another communicates brilliantly but lacks the depth to troubleshoot complex environments. Finding people who combine both takes time.

And as recruitment drags on, the cost spreads beyond the vacancy itself:

• Existing engineers absorb the extra tickets
• Project delivery slows
• Managers spend more of their week recruiting
• Customer service starts to suffer

An unfilled role isn't necessarily a saving. Sometimes it's the constraint that stops the business growing.

6. Immigration restrictions are reducing access to international talent

Historically, recruiting from outside the UK was another way to address domestic skills shortages. Changes to immigration rules have made that harder and potentially more expensive.

Under current Skilled Worker visa rules, applicants generally need to meet a minimum salary of £41,700 or the occupation's going rate, whichever is higher, subject to specific exemptions and transitional arrangements. Sponsoring employers also face visa costs, compliance obligations and extra administration.

For an MSP recruiting an experienced senior engineer, those costs may be commercially justifiable. For more junior roles, service desk positions or back-office functions, the economics are much harder.

It also highlights an important distinction: bringing international employees into the UK is different from building a distributed workforce that works from another country. Employing talent internationally through an appropriate offshore service model doesn't require relocating anyone. For IT service providers, where many responsibilities can be performed securely and remotely, that opens up other workforce options.

7. The cumulative impact is reducing employers' confidence to hire

Perhaps the most concerning outcome isn't the extra cost itself. It's the effect on confidence. The October 2026 CBI/Pertemps Employment Trends Survey found that only 15% of responding employers were confident about hiring, down from 24% in 2025, and identified labour costs and employment regulation as two of the biggest concerns for UK labour market competitiveness.

Employers are becoming more cautious about committing to permanent employees, and that caution can create a difficult cycle:

Illustrative business impact, not a measured causal sequence.

For MSPs, this cycle is particularly damaging. A service desk engineer already overwhelmed with tickets can't easily make time to improve processes, implement automation or proactively manage customer environments. The business becomes more reactive. Instead of investing in the people and systems that would make it more efficient, management spends its time dealing with the immediate consequences of too little capacity.

Growth becomes dependent on asking existing employees to do more. That isn't a sustainable business model.

8. Why MSPs need to rethink their workforce strategy

Against this backdrop, MSP owners need to reconsider how they approach recruitment and workforce planning. The answer isn't to stop hiring in the UK. Local talent remains incredibly important. But not every position needs to be filled locally, and not every extra pound of revenue should need a matching increase in UK employment costs.

Combining local expertise with international delivery capability can bring several benefits:

• Improved cost efficiencyLower delivery costs for certain functions, improving gross margin without compromising technical capability.
• Access to specialist skillsA larger talent pool beyond the domestic market, especially for specialised technical roles.
• More operational capacityLocal people freed up for customer relationships, higher-value technical work and revenue-generating activity.
• More predictable costsClearer monthly workforce costs, with less exposure to some of the variable costs and admin of direct hiring.
• Better scalabilityCapacity that grows without relying only on increasingly expensive local recruitment.

Offshoring should never be about finding the cheapest possible employee. The goal is the right person in the right role, with clear accountability and a genuinely integrated team. An offshore engineer should be held to the same standards of technical capability, customer service, productivity and accountability as an onshore employee.

Done properly, offshoring becomes more than a labour cost strategy. It becomes an opportunity to improve the operating model of the business.

9. The future belongs to businesses that can grow without increasing costs at the same rate

There's an important difference between growing a business and growing a profitable business. An MSP can increase revenue by 20%, add more people and appear to be performing well. But if employment costs, software and overheads rise at the same rate, it may not become any more profitable:

That's why workforce strategy has to be connected to financial performance. Rather than asking only how many people to hire, MSP leaders should be asking:

• Which roles genuinely need to be delivered locally?
• Which responsibilities could an offshore team perform effectively?
• Are our most expensive technical people spending their time on the work that creates the most value?
• Can automation, process improvement and better resource allocation increase our existing team's capacity?
• What's the fully burdened cost of each role, and how does it affect gross margin?

These aren't just recruitment questions. They're questions about business maturity, profitability and long-term sustainability, and as the cost of employing people in the UK keeps rising, the answers matter more. (Our MSP staffing calculator helps you work out how much capacity you actually need.)

Conclusion: UK hiring is changing, and businesses need to change with it

The UK isn't running out of talented people. But rising employment costs, regulatory complexity, hiring challenges and commercial uncertainty are making traditional workforce expansion harder for many employers.

For MSPs and IT service providers, the challenge is particularly acute. You have to keep delivering excellent service, protecting customer environments and developing technical capability, all while maintaining sustainable margins. Passing every extra employment cost on to customers isn't always realistic. Nor is expecting existing employees to keep absorbing more work.

The organisations that succeed will be the ones prepared to rethink how they build and manage their workforce: investing in their existing people, improving operational efficiency, embracing automation and considering new ways to access the talent they need. It also means recognising that a great business no longer needs every employee in the same office, city or country.

The challenge is no longer how to hire more people. It's how to build the right team, with the right capabilities, at a cost that lets the business grow profitably.

For many UK MSPs, that conversation is long overdue.

How Dijital Team helps UK MSPs build more profitable businesses

At Dijital Team, we work with MSPs and IT service providers on the workforce challenges that constrain growth and profitability. Through our Sri Lanka-based talent model, we help organisations build dedicated offshore teams that integrate with their existing business, with a focus on improving both margins and operational maturity.

Our value extends beyond recruitment. Through our Better Business Pathway, we work with customers to understand the operational and financial challenges affecting their business, identify opportunities for improvement and build a more sustainable approach to growth. See how it works for offshore IT staffing in the UK.

Offshoring shouldn't simply make a business cheaper to run. It should help make it a better business.

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