Rising employment costs: How businesses can adapt and stay resilient

The latest figures from the CIPD tells the story of the current confidence levels of employers, with 32 per cent of businesses set to cut jobs or pause recruitment.

Redundancies are now at their highest level in a decade (pandemic aside).

This is mainly due to a mix of economic uncertainty and increasing employment costs.

The upcoming hike in employer National Insurance contributions (NICs) and the rise in the National Minimum Wage are putting financial pressure on businesses across the country.

With the secondary NIC threshold dropping from £9,100 to £5,000, companies are bracing for higher payroll bills. In response:

42 per cent plan to raise prices

24 per cent are cutting back on investment

19 per cent are scaling down training budgets, despite its proven link to productivity

With these challenges ahead, businesses must act now to protect their finances, workforce, and future growth.

Take control of your financial outlook

Now is the time for detailed financial forecasting.

Map out how rising employment costs will affect your bottom line and identify pressure points early.

Look at payroll, cash flow, and profit margins to determine how much flexibility you have.

Questions to ask:

Can supplier contracts be renegotiated?

Are there inefficiencies in operational processes that can be addressed?

Would investing in automation or digital tools help reduce costs in the long term?

Scenario planning will help you prepare for different economic conditions and make smarter financial decisions.

Maximise tax reliefs and financial incentives

Higher costs mean tax reliefs and incentives should be a top priority. Some key options include:

R&D tax credits – If your business is innovating, you could reclaim a portion of your investment.

Capital allowances – If you are purchasing new equipment or investing in infrastructure, tax relief may apply.

Apprenticeship incentives – Hiring apprentices could offer both financial support and long-term workforce benefits.

Speaking to our team can help ensure you are taking full advantage of available reliefs to offset rising costs.

Review compliance and audit obligations

The new company size thresholds coming into effect in April could mean reduced compliance requirements for some businesses.

If your classification is changing, you may benefit from exemptions on statutory audits and streamlined reporting obligations.

What to do now:

Check if your company will fall into a different size category

Assess potential savings on audit and compliance costs

Adjust financial reporting processes accordingly

Be strategic about workforce planning

While redundancies might seem like a quick solution, they come with risks.

Losing skilled employees can be costly when hiring picks up again. If reducing headcount is unavoidable, consider:

Gradual reductions rather than immediate cuts

Redeploying employees into revenue-generating roles

Offering flexible work arrangements to manage costs

Businesses in sectors with skills shortages (accountancy, education, and construction) should retain key talent wherever possible to avoid future recruitment challenges.

Rethink pricing and investment strategies

With price increases on the horizon for many businesses, communicating value to customers will be critical.

If you need to raise prices, focus on justifying the change, whether that is through quality, service improvements, or added benefits.

And while some businesses are pulling back on investment, those that continue to invest strategically could gain a competitive edge. Prioritise areas that will drive efficiency and resilience, such as automation, employee training, and digital transformation.

Would you like your guidance to help your business adapt to rising costs and legislative changes? Contact our expert accountants today.