What can businesses do amid rising employment costs and falling confidence?
19 February 2025
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The latest CIPD survey of over 2,000 UK employers paints a concerning picture.
32 per cent of businesses plan to cut headcount or freeze recruitment, and the risk of redundancies is at its highest in a decade (outside of the pandemic).
The reasons? A combination of economic uncertainty and rising employment costs, with 90 per cent of businesses expecting higher costs due to the upcoming increase in employer National Insurance contributions (NICs) and the National Minimum Wage (NMW) from April.
With the secondary threshold for employer NICs dropping from £9,100 to £5,000, many businesses are bracing for financial strain.
In response, 42 per cent are planning to increase prices, 24 per cent are scaling back investments.
Despite the clear and obvious role that training plays in improving productivity and addressing skills shortages, 19 per cent are reducing training budgets.
So, how should businesses prepare for these changes while maintaining financial stability?
Understanding the financial impact of rising costs is key.
Review payroll expenses, cash flow, and projected profitability to assess how much additional strain your business can absorb.
Scenario planning can help you anticipate different outcomes and adjust accordingly.
If staffing costs are set to rise significantly, look for efficiencies elsewhere.
Can you renegotiate supplier contracts, improve operational processes, or invest in technology to reduce overheads?
Tax planning is more important than ever. Businesses may be able to offset rising employment costs by taking advantage of available reliefs.
Work with our accountants to ensure you are maximising all available tax reliefs to ease the financial burden.
If your company size classification is changing due to the new financial thresholds coming in April, you may have reduced compliance obligations.
This could be a chance to streamline reporting requirements and lower costs, especially if you no longer require a statutory audit.
Businesses on the borderline of classification changes should review their financials now to see if they can benefit from these adjustments.
While redundancies may seem like a quick fix, they come with long-term risks, including the loss of skilled employees and potential rehiring challenges when conditions improve.
If reducing headcount is unavoidable, consider phased reductions, redeploying employees into revenue-generating roles, or offering flexible working arrangements to manage costs without losing talent.
Prioritise retaining key employees in hard-to-fill roles.
The accountancy, construction, and education sectors are already struggling with skills shortages, meaning rehiring may be costly and difficult.
With many businesses raising prices to offset employment costs, competition is set to intensify.
If increasing prices is necessary, ensure customers understand the value they are getting to avoid losing business.
Additionally, while 24 per cent of businesses are cutting back on investment, those that can continue to invest strategically may emerge stronger when market conditions improve.
Rather than slashing investment altogether, focus spending on areas that drive long-term efficiency, such as automation, training, or digital transformation.
While rising employment costs are a challenge, businesses that take proactive steps will be better positioned to weather the storm.
Need a helping hand in steering your business through troubled waters? Contact us today.
