Scottish businesses have frozen salaries and delayed pay rises ahead of changes to employers’ National Insurance Contributions (NIC), which came into force last weekend.

A new survey from accounting firm BDO found that nearly half of Scottish firms (44%) have taken action on pay since the October Budget to prepare for the increase to employers’ NIC and the National Minimum Wage, which has risen by 16.3% to £10 per hour, while the National Living Wage has increased by 6.7% to £12.21. 

BDO’s Economic Engine survey revealed that employers are bracing for the impact of these extra charges, with two-fifths of Scots businesses now using contract workers instead of recruiting permanent staff, while 34% have imposed a full recruitment ban. 

Meanwhile, 40% of Scottish companies have chosen to introduce or enhance their salary sacrifice schemes, including those relating to pensions.

According to BDO, Scottish firms are scrambling to find ways to retain and motivate staff as costs increase, with 32% exploring new awards schemes to improve employee engagement, while more than a third (38%) are looking at flexible working and 42% are planning to introduce wellbeing programmes.

“The increases to employers’ National Insurance Contributions announced at the Budget…have clearly forced many businesses in Scotland to take drastic action,” said James Paterson, tax partner at BDO in Scotland.

“As our previous Economic Engine surveys have shown us, Scottish businesses are keen to explore other options, as a way of mitigating cost increases, whilst also helping to retain and motivate staff.”

However, BDO warned that changes to staff rates, especially the National Minimum Wage, mean businesses face a growing compliance risk. 

If incentives such as pension or other salary sacrifice schemes push employees below the minimum wage floors, this could bring HMRC sanctions, including penalties of up to 200% and being ‘named and shamed’.

“Those employers who have historically paid wages above the minimum levels may now find themselves in a position where they have to pay close attention to the rules to ensure they are NMW compliant,” continued Paterson.

“There are a number of risk areas for employers to consider – notably around salary sacrifice, deductions for uniforms or accommodation, or memberships of savings clubs that could, in certain circumstances, tip them over the threshold into non-compliance.”

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Ahead of the changes, another poll released by the Scottish Liberal Democrats in December found that 40% of Scots expected more business closures because of the UK Government’s decision to raise National Insurance Contributions, while more than a third thought there would also be fewer jobs as a result.

The first quarter of 2025 has also seen Scottish firms take an increasingly pessimistic outlook in response to the policy changes, with 70% stating that these will have a significant impact on operations over the course of this year.

The Scottish Government has been vocal in its opposition to the tax hikes and estimated that the move would cost an extra £850 per employee on average, with the Scottish employment and investment minister Tom Arthur saying that the move would likely drive higher prices for consumers, calling the new policy a “tax on jobs.”