Employment shrinks by 0.4% in February as SMEs prepare for new costs

– Employment Hero’s SmartMatch Employment Report of 105,000 UK employees shows employment retracted by 0.4% in March.
– Overall employment has been trending downwards since the Government announced a tax hike on employers in October, which comes into effect next month.
– Youngest workers are the worst hit as employers prepare to pay them more.

London, 17 March: Employment continued to retract in February following the Government’s decision to hike job taxes, findings from Employment Hero Jobs Report shows.

Employment Hero’s SmartMatch Employment Report uses real-time data from 105,000 employees across small and medium-sized businesses with 1-500 employees in the UK.

Line graph illustrating monthly employment growth from February 2024 to February 2025. Notable peaks in April (2.0%) and July (1.4%), ending at -0.4% in February 2025.

Data from the end of February showed that employment shrunk by 0.4% across the month, following a slight growth of 0.2% in January.

On average, employment growth has decreased by 0.3% every month since October, when the hike to employer National Insurance contributions was announced. These changes will see employers pay an additional £900 in annual taxes per employee at the median wage*.

Young and Welsh hit the hardest

All age groups contributed to the month-on-month decline in employment, but those aged 18-24 were disproportionately impacted, with employment falling 1.8% for this group.

While the tax hikes are likely to be a contributing factor, the Government’s decision to eliminate the minimum wage for 18-20-year-olds is also a probable cause of the decline.

From 1 April, employers will have to pay all adults aged 21 or over the National Living Wage of £12.25, which previously only applied to those aged 23 or over. The lower minimum wage for 21-22 year olds is being eliminated.

Regionally, Wales saw the largest decline in employment with a 3.3% decrease in February – offsetting employment gains made over the last year.

Scotland and The South of England experienced the highest employment growth in February, both growing 0.9%.

Kevin Fitzgerald, UK MD of Employment Hero commented:

“This 0.4% contraction in employment growth is particularly concerning given its disproportionate impact on younger workers. While employers will have to pay more for these roles, the bigger challenge is that younger employees often require more training and support. Rather than replacing them, many SMEs will simply absorb the extra workload themselves, as they can’t afford the additional strain.”

“If this trend continues, we could see a much more challenging job market emerging in the months ahead, particularly for younger workers trying to get their foot on the career ladder. We are already nearing one million** young people not in education or employment – this will only get worse.”