ATA Recruitment

Why More Businesses Are Turning to Contractors Amid Rising Employment Costs and IR35 Changes

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​The way businesses think about their workforce is changing. Rising employment costs and new legislation such as the Employment Rights Bill and IR35 reform are driving leaders to explore flexible workforce models.

Contractors, once seen as a stop gap, are now central to long-term strategy. They provide agility, cost efficiency, and access to specialist skills.

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A shifting employment picture

According to the Office for National Statistics, the UK had around 30 million payrolled employees in July 2025, a fall of 178,000 compared with the same month in 2024.

Despite this, the unemployment rate remained steady at 4.7%. This highlights that demand for skills is still strong, but organisations are choosing different ways to access them.

Contract and project-based workers are bridging the gap. They allow businesses to stay productive without expanding permanent headcount.

At the same time, cost pressures are increasing. Government forecasts show that business rates in England are expected to rise to £28.8 billion in 2025–26, up from £27.5 billion in 2024–25.

For engineering and manufacturing firms already facing higher energy and labour costs, flexibility is not just about efficiency. It is now a competitive edge.

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Why contractors are in demand

Contractors are helping organisations adapt by offering immediate and measurable advantages:

• Agility: Teams can be scaled quickly in response to project deadlines or market changes.

• Specialist expertise: Niche skills can be brought in at the point of need, particularly in engineering and technical sectors.

• Cost control: Businesses pay for expertise only when required, protecting margins while maintaining output.

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Plugging the permanent skills gap

Many organisations are also struggling to recruit permanent engineers. The engineering skills gap remains one of the biggest challenges facing the UK economy, with demand for qualified professionals continuing to outstrip supply.

Contractors are playing a vital role in bridging this gap. By stepping into critical roles at short notice, they keep production, maintenance, and projects moving forward.

This flexible solution ensures organisations can remain competitive while developing longer-term strategies to attract and retain permanent talent.

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IR35: renewed confidence

For several years, IR35 made businesses hesitant about engaging contractors. However, the updated rules introduced in April 2024 have provided more clarity, fairer processes, and better protection against disproportionate penalties.

When compliance is managed properly, the financial risk of misclassification is relatively modest, typically around 8 to 10% of contractor fees.

With this clarity, more firms are now recognising contractors as a low risk, high value way to strengthen their workforce.

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Contract recruitment as a growth driver

Contractors are no longer just filling short-term gaps. They are enabling businesses to take on new projects, adopt new technologies, and scale rapidly when opportunities arise.

In engineering and manufacturing, this approach has become critical. Project pipelines are unpredictable, supply chains are shifting, and the demand for technical skills continues to outpace supply.

A blended workforce of permanent and contract talent gives businesses the resilience to adapt and grow.

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One decisive advantage

To fully realise these benefits, businesses need more than just access to contractors. They need the right talent, deployed quickly, with compliance guaranteed.

This is where ATA Recruitment provides a decisive advantage. At ATA Recruitment, we recognise that the skills gap in engineering and manufacturing is one of the greatest challenges facing the industry today. That is why we are dedicated to driving long-term, sustainable change.

Our mission is to bridge the skills gap in engineering and manufacturing through world-class recruitment and attraction methodologies. We are committed to driving the growth of the sectors we serve, the businesses within them, and the careers of individuals.

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Ready to unlock the benefits of contract recruitment?

Build a more agile workforce, access specialist skills when you need them, and stay fully compliant with IR35.

Talk to ATA Recruitment today to strengthen your contractor strategy.