The cost of employing someone in the UK has risen by almost 10% (9.6%) in the past year, new YouGov data commissioned by Employment Hero shows.
As higher salaries, rising National Insurance Contributions and growing compliance demands squeeze businesses from all directions, the figures – drawn from a YouGov survey of more than 1,000 UK business leaders – paint a picture of an employment landscape that has shifted considerably in a short space of time.
A Sharper Climb Than Businesses Expected
Thinking back to three years ago, respondents rated the complexity of employment at an average of 4.7 out of 10. Today, that figure stands at 6.2, representing a 32% increase that tracks closely with the recent wave of legislative change that has fundamentally reshaped how businesses hire, manage and retain staff.
Kevin Fitzgerald, UK Managing Director at Employment Hero, says the cumulative pressure is showing up in a way that goes beyond balance sheets.
“Small businesses are the engine room of the UK economy, but too many are now being asked to grow with one hand tied behind their back. Hiring should give business owners confidence, yet this data tells us that it’s actually what’s keeping them up at night as concerns grow around cost, admin and risk to their business and livelihood.”
Additional figures from the survey show the full extent of those difficulties. More than half of businesses (56%) say employing staff has become more complex over the past 12 months, with nearly a fifth (19%) describing it as “much more complex”. Those who believe prospects have gotten easier come in at just 2%.
Where the Money Is Going
A commitment to securing higher salaries for employees in the face of cost of living pressures remains the primary driver of those challenges, with 71% of businesses naming them as their biggest issue in that respect. In retail, hospitality and leisure, sectors most likely to be impacted by the recent National Minimum Wage increase, that figure stands at 84%.
But that conundrum isn’t just confined to payroll – a picture that intensifies among small businesses. In fact, 69% with 50 employees or more (SMEs) say recent changes to employment law have increased their overheads, versus 56% of businesses with up to 250 employees. At the same time, more than half (51%) report increases in HR administration, payroll processing and recruitment costs over the same period.
Hiring Decisions Are Changing
With businesses creaking under the weight of this growing financial burden, approaches to hiring are changing too. The research found that 78% of firms feel that changes in employment have affected their ability to grow over the last year. As is often the case, the strain falls hardest on SMEs: nearly one in five (19%) say new employment laws significantly discourage them from hiring, compared with 11% of larger businesses.
The Fear of Getting It Wrong
Compliance remains another source of pressure. Over half of businesses (53%) say they’re worried about unintentionally breaching new employment laws, many of which have been delivered via the Employment Rights Act, a concern that’s feeding directly into decisions about whether and when to take on staff.
Elissa Thursfield, Specialist Employment Lawyer and Managing Director of HRoes, says the anxiety she hears from clients goes further than frustration:
“These aren’t just conversations about how tough the landscape is. We are also hearing genuine fear from some employers about how sustainable it is to continue operating.”
Fitzgerald says the picture is one of businesses that want to do the right thing but are running out of runway to do it. “We hear from employers every day who want to do right by their people as well as grow and contribute to the economy, but they need clearer support and better tools to keep pace with change.”
Though the instinct to change course in light of these changes makes sense, Elissa stresses that the best approach businesses can take is to resist it.
“The answer for SMEs is not to step back from hiring, which is too often the response we see. The answer is to put the right tools in place, take guidance in bite-sized chunks, and make sure you have a trusted team around you.”
The stakes, the data suggests, extend well beyond individual businesses. When the cost and complexity of employment reaches the point where growth feels like a liability, the consequences ripple outward, with fewer jobs created, investment deferred and, ultimately, an economy that struggles to move at the speed it needs to. For businesses already working with tighter margins and heavier admin loads, the gap between wanting to hire and being able to afford to is only getting wider.
