Full-time employment costs in the UK have risen by close to 10% (9.6%) in a single year, according to new YouGov data commissioned by Employment Hero.
As a result, 44% of businesses have already frozen or slowed hiring – and cost isn’t the most significant driver of that shift.
A Year of Employment Law Changes
Between major legislative changes like unexpected rises in Employer National Insurance Contributions in 2025, the introduction of the Employment Rights Act and the recent National Living Wage hike in April this year, the compliance burden for businesses has been considerable.
The cumulative effect of that weight shows in the YouGov data. Thirty-nine per cent of businesses have specifically reduced full-time recruitment – not hiring broadly, but permanent roles in particular.
For businesses weighing up whether to take on a permanent member of staff, this mounting list of obligations have made that decision much harder to take.
One in Four UK Businesses Are Hiring More Contractors
With these challenges to contend with, the way employers approach hiring is changing too.
As many as one in four businesses (25%) say they’re increasing their use of contractors and freelancers and plan to continue doing so.
Separate figures affirm this trend. March labour market figures from the Office for National Statistics show the number of payrolled employees in the UK fell by 96,000 in the year to January 2026. And the CIPD’s Winter 2025/26 Labour Market Outlook found that two in five employers expect to hire fewer permanent workers as a direct result of Employment Rights Act reforms – suggesting these shifts have further to go.
Given that taking on full-time employees has become more costly and legally complex, it appears businesses consider contractors a means of bringing in the people and skills a business needs without those same statutory obligations.
Why UK Businesses Are Choosing Contractors
When employers in the YouGov research were asked why they’re turning to contractors, 49% of respondents cited flexibility as their top reason. Avoiding long-term commitment came second at 43%, access to specialist skills was third at 40% and cost came in fourth at 34%.
Although financial pressures and the enduring cost of living crisis are real and have clearly accelerated these trends, the solutions businesses are opting for don’t stop at cost considerations. Permanent employment also carries obligations – legal exposure, statutory entitlements and administrative complexity – that it appears a growing number of employers are no longer prepared to take on as a matter of course.
That means while demand for skills hasn’t diminished, the appetite for the formal structures that usually surround acquiring those skills from employees is changing. For a growing number of UK businesses, it’s no longer a given that the work a business needs to thrive requires full-time employees to execute it.
For workers, the shift carries its own implications. Contractors and freelancers are generally not entitled to the same statutory protections as employees – sick pay, redundancy pay, and pension contributions among them. As more businesses move towards flexible hiring, a growing share of the workforce is taking on not just more flexibility, but more risk too.
