Considering outsourced HR? Over the past few years, UK companies have been caught in an increasingly difficult financial environment. We explore the financial environment and explain how outsourcing can bring a competitive edge.
Rising wage costs, higher taxes and persistent inflation have all pushed operational costs upwards, squeezing already tight margins. Compounding the pricey operational issues are broader operational expenses: energy prices, business rates, supply chain costs and compliance requirements, have all seen increases over the past years, making it harder for SMEs to maintain profitability without strategic changes.
Sector updates
All these challenges haven’t been unnoticed. Business leaders across key industries are sounding the alarm about the long-term viability of their operations unless they find new ways to manage their overheads, or their expenses:.
Kate Nicholls, Chief Executive of UKHospitality, recently stated that “employers in hospitality are facing a triple whammy of a National Living Wage increase, higher employer NICs and continued inflationary pressure” (The Guardian).
UKHospitality warned that, without support, many venues may have no choice but to reduce staff hours, raise prices, or in worst cases, shut down. Rising wage bills could add £3 billion in extra costs to the sector in 2025 alone.
According to the British Retail Consortium, cumulative new costs—ranging from the National Living Wage rise, higher NICs, increased business rates and new sustainability reporting requirements—will add around £7 billion to retailers’ bills in 2025 (BRC News). The BRC stated: “These additional burdens risk pushing up prices for consumers at a time when affordability is already stretched.”
The manufacturing sector, often regarded as the backbone of the British economy, is also feeling the squeeze. According to the latest Manufacturing Outlook 2025 Q1 report by Make UK and BDO, the sector experienced its first first-quarter output decline in a decade.
This downturn is attributed to a significant slump in business confidence, with both domestic and export orders slowing. In response, nearly half of manufacturing companies have frozen recruitment, over a quarter are contemplating redundancies, and a third have delayed investment plans.
Employment costs are a primary concern. Over 90% of manufacturers anticipate increased employment expenses this year, driven by the rise in the National Living Wage and higher employer National Insurance Contributions. Additionally, approximately 70% of companies expect their energy costs to rise, with similar percentages foreseeing increases in logistics and transportation expenses. Raw material costs are also climbing, with 79% of firms reporting hikes.
Stephen Phipson, CEO of Make UK, emphasised the urgency of the situation, stating, “Manufacturers are resilient, but the combination of higher employment costs, inflation and global uncertainty is making long-term planning extremely difficult
Even the financial services sector, usually more insulated from economic shocks, is rethinking its cost structures. Several major banks and fintech firms have started outsourcing back-office roles, such as compliance, HR and IT services.
Lloyd’s of London have taken a decision to restructure data, operations and change departments, which includes outsourcing certain functions to external providers. From April 1st 2025, consulting firm Accenture assumed responsibility for Lloyd’s IT services, aiming to modernise the company technology infrastructure and transition towards a more digital operational model.
Your competitive edge: outsourcing
With costs mounting on all sides, it is time to do things different.
A 2023 report by SpareMyTime found that 48% of UK businesses outsource at least one part of their operation, representing a 41% increase since the pandemic. Outsourcing is no longer limited to IT or customer service; it’s expanding into HR, finance, marketing, compliance, training and wellbeing.
If you are a SME you might ask yourself why you should make the shift? In short, outsourcing offers you flexibility, reduces fixed costs and provides you direct access to specialist skills without a long-term commitment.
But what can you outsource? Below are the key areas we encourage you to explore:
- Payroll and outsourced HR administration: Managing payroll, tax compliance, contracts and HR queries can be time-consuming and legally complex. Functions such as recruitment, compliance, and employee relations are increasingly being outsourced. According to Evelyn Partners, 41% of business owners with turnovers above £5 million plan to outsource these functions by the end of 2025, possibly in response to the Labour Governments preparation for the biggest change in Employment Law for decades.
- Operational and strategic HR outsourcing: Projects such as disciplinaries, grievances, organisational design and workforce planning aren’t always consistent in their timing. These are easy projects to commission externally, ensuring your internal team continue to deliver quality, day to day HR support to the business while specialists are assigned to projects or to support peak requirements for resource.
- Marketing and social media management: Hiring a full-time marketing team is expensive. Instead, you can partner with agencies or freelancers to handle SEO, social media management, branding and advertising. This provides professional marketing support without the full-time cost.
- Training and Development: Building and provide training programmes internally is resource intensive. You can outsource this to specialist companies or secure a Learning Management System (LMS) which offers ready-made or tailored training content, making it easier to upskill teams while staying compliant. At Redway, we offer online training so you can ensure your team is compliant with the law, and we work for you and with you offering bespoke training for your organisation.
Online learning, written by experts, from Redway HR - Wellbeing Support: Mental health and wellbeing are more important than ever. Rather than hiring in-house wellbeing officers, many businesses partner with Employee Assistance Programme (EAP) providers to offer confidential mental health support, coaching and advice services for their staff.
- Finance & Accounting Services: Managing finances in-house can be complex, especially with evolving tax regulations and compliance requirements. Outsourcing financial functions can improve accuracy, reduce risks, and free up leadership teams to focus on strategic growth.
- IT and digital: Technology is the backbone of modern businesses, but maintaining secure, high-performing systems requires expertise that many SMEs don’t have in-house. Outsourcing IT functions can strengthen cybersecurity, boost efficiency, and enhance operational resilience.
- General administration: Administrative tasks are essential but can take up valuable time that could be spent on strategic growth. Outsourcing general administration ensures operational efficiency while freeing business leaders to focus on core priorities; think travel arrangements, handling incoming calls, data entry, expenses and more.
The benefits of outsourcing
Outsourcing services is not just a short fix for those rising costs, it should be part of your strategy to be more efficient, help you grow and buy time for yourself. Here are some of the main benefits businesses are already seeing:
- Save costs
Outsourcing turns fixed costs into variable ones. Instead of bearing the full expense of salaries, pensions, National Insurance Contributions, training and office space; you can only pay for the services you need… when you need them.
- Get an expert
Many organisations cannot afford to hire C-level or senior professionals across every function. However, outsourcing provides you with immediate access to experts for any service you require.
- Stay flexible
Something we have learnt in the past years is that markets change fast. Outsourcing allows you to easily scale services up or down based on demand without the legal complexity of hiring or making redundancies.
- Focus on growth
Every hour spent on payroll, IT troubleshooting or preparing a training is time not spent growing your business. Outsourcing clears away the operational clutter, freeing you and your team to focus on customers, innovation and expansion.
- Reduce risks
Outsourcing certain tasks can reduce legal and compliance risks. Specialist providers are up to date with changing regulations, especially in areas like HR, GDPR, payroll and finance.
Conclusion: change and grow
Businesses don’t have it easy right now. At the same time, customer expectations are also changing, with a greater focus on speed, flexibility and personalisation. And the new generation entering the workforce brings different values and demands around how, where and why work is done.
Against this backdrop, outsourcing has become not just a tactical decision, but a strategic one. It enables businesses to stay focused while gaining access to the specialist skills and capabilities they need to meet new market demands. Whether it’s outsourcing payroll, marketing, training, or customer service, bringing in external expertise allows SMEs to stay agile, control their costs and free up internal teams to focus on what drives real growth.
Rather than being a short-term fix, outsourcing gives businesses a way to build greater flexibility into their operations, freeing them to focus on growth, innovation and customer experience.
Businesses that adapt and rethink how they work today are shaping stronger strategies for the future.
Outsourcing isn’t just a tool for survival. It’s your long-term investment strategy.
If you want to explore how we can help keep your fixed costs low while making an impact on your organisation’s success, get in touch to learn about our award-winning outsourced HR service today.
By Oscar Alvarez