Jessica O'ConnorMore than three-quarters of organisations in Scotland have seen employment costs increase due to rises in employer National Insurance contributions (NICs), according to the CIPD’s latest Labour Market Outlook survey.
The report highlighed that the impact is being felt most in the hospitality and care sectors, and among employers with a higher proportion of young workers.
The quarterly survey of more than 2,000 UK employers revealed that nearly four in 10 UK employers hiring under-21s said changes in NICs had increased their employment costs to a large extent, compared with just 23% of employers who do not hire young people.
This is despite the fact that employees under 21 are exempt from employer NICs.
In response to the findings, the CIPD has urged the UK and Scottish governments to work together to support youth employment and training, and to ensure that proposed changes in the Employment Rights Bill do not create further recruitment barriers or deter employers from hiring young workers.
The survey also identified other pressures on employers in Scotland.
Over half reported that the increase in National Minimum and Living Wage rates in April 2025 had raised their wage bills.
Half of UK employers in the care and hospitality industries said NICs changes had substantially increased their costs.
When asked which cost rise had the biggest impact over the past year, 27% of Scottish employers named NICs, followed by energy costs at 20% and raw materials at 10%.
Marek Zemanik, senior public policy advisor for the UK nations at the CIPD, said: “Business confidence is weakening under the weight of rising employment costs, particularly in sectors like hospitality and care that provide crucial entry points for young people.
“Some of the proposed measures in the Employment Rights Bill risk adding further cost and complexity to employing people in Scotland.
“This is why it’s crucial that planned measures, such as the introduction of a new statutory probationary period and plans to change rules for dismissing new staff, are carefully consulted on to ensure they work in practice.
“If new employment laws increase the risk of recruiting new staff, employers are less likely to take a chance on young workers with limited experience and more development needs.”
Looking ahead, 58% of Scottish employers plan to recruit in the next three months, but more than a quarter already have hard-to-fill vacancies and 43% expect recruitment difficulties in the next six months.
A further 12% plan to make redundancies over the same period.
Zemanik added: “It’s crucial that employers aren’t forced to scale back on their recruitment and investment in apprenticeships and other forms of training for young people as their costs rise. Providing employment opportunities and developing the skills of young people is key to building sustainable talent pipelines and meeting future skills needs that support long-term business growth.
“We simply cannot afford for businesses to lose confidence in employing people if the government’s Get Britain Working agenda is to be successful and the economy is to grow.
“Where many employers aren’t expecting to grow their workforces in the coming months, they should monitor workloads and support staff with their wellbeing, particularly where vacancies remain unfilled. Investment in reskilling and upskilling opportunities will be crucial to keeping employees engaged and meeting business objectives.”
