Increasing financial pressure is being put onto businesses, forcing many to rethink their staffing costs. With rising employment expenses such as National Minimum Wage, Employers’ National Insurance contributions and additional costs tied to statutory sick pay and redundancy payments, businesses must explore cost-saving strategies to reduce workforce costs without jeopardising long-term business stability.
New and Rising Costs for Employers
Employers need to factor in the increasing costs of workforce management, including:
- Higher National Minimum Wage and National Living Wage – Increased rates impact payroll costs across all industries.
- Rising Employer National Insurance Contributions – From April employers are paying more per employee in contributions.
- Increased Statutory Redundancy Pay – As wages rise, so do redundancy payouts, adding financial strain to businesses making workforce reductions.
- Enhanced Employee Rights and Compliance Obligations – The Workers Protection Act and other legal changes mean employers must invest in training, policy updates and proactive risk management to avoid (even more) costly disputes.
- Future Employment Rights Bill Changes – Proposed in 2024, these changes could introduce further costs related to flexible working, contract changes and increased worker protections. Businesses should stay informed and prepare for additional administration and compliance expenses.
But what can employer’s do to reduce workforce costs?
1. Strategic Annual Leave Management
Managing annual leave effectively can help regulate staffing levels without permanent reductions. Employers can require employees to take holiday at specified times, provided they give notice of at least twice the length of the holiday period being enforced (e.g. 10 days’ notice for a 5-day holiday). Employers can also make sure that when people resign, they don’t have a huge balance of accrued but untaken leave which will need to be paid. Strategic holiday management can help smooth out workloads and avoid burdensome balances while maintaining compliance with employment regulations.
2. Sick Leave Costs and Employer Responsibilities
Statutory Sick Pay (SSP) is a growing cost for employers, with no government-funded reimbursement for most businesses. Although details are not yet confirmed, it is likely that in 2026 employers must budget for the cost of SSP from day one of illness-related absences. To mitigate unexpected expenses, businesses should consider a holistic approach to employee wellbeing, implement absence management policies, encourage return-to-work discussions and so reduce long-term absences. The key to success here will be educating line managers in how to deliver these approaches consistently and empathetically to ensure engaged and productive teams.
3. Accessing Financial Support and Tax Efficiency
Businesses looking to reduce workforce costs should explore financial support options, including Access to Work grants, which can help cover the cost of workplace adjustments for employees with disabilities or health conditions. Additionally, local and national business grants may be available to support training, innovation or workforce retention. Engaging a skilled accountant can also help identify tax efficiencies, such as salary sacrifice schemes (ask us about the salary sacrifice electric car lease scheme we have in place or the salary sacrifice pension scheme), tax relief on training investments and optimised payroll structuring.
4. Hybrid and Remote Working
Shifting to hybrid or remote working models can deliver significant cost savings while boosting candidate attraction and employee satisfaction, in particular with some specific demographics (thus where it is offered it is likely to boost the diversity of the team). Reducing office space requirements lowers rent, utility and maintenance costs, while potentially cutting expenses related to travel reimbursements and office supplies. For employees, flexible working arrangements often hold more value than a salary increase, improving retention and reducing recruitment costs. Businesses that embrace hybrid working can also attract a wider talent pool without geographic restrictions, making it easier to secure skilled professionals at competitive salary levels.
5. Parental Leave and Time Off for Dependents
Employers can consider encouraging unpaid parental leave or time off for dependents. Eligible employees are entitled to 18 weeks of unpaid parental leave per child (up to four weeks per year per child). Additionally, time off for dependents can be granted to handle emergencies, though it is usually short-term and unpaid unless company policy states otherwise.
6. Lay-Offs and Short-Time Working
If your workforce costs are still too high, temporary reductions in working hours can be an alternative to redundancies (which can be costly where your workforce have been in place for a period of time).
Lay-offs (sending employees home without pay) and short-time working (reducing hours and pay) require a contractual clause or employee agreement so if you don’t have those written in to your contracts it might be time for an update. Employees placed on lay-off or short-time working may be entitled to statutory guarantee pay—currently a maximum of £38 a day for 5 days in any 3-month period – so a maximum of £190 at the time of writing.
However, prolonged lay-offs could lead to redundancy claims, as employees can request redundancy pay if they have been laid off for:
- Four consecutive weeks, or
- Six weeks within a 13-week period.
7. Restructuring and Redundancies
If the above measures aren’t enough to manage your workforce costs, restructuring or redundancies may be necessary. Employers must follow a fair and transparent process to avoid legal risks. If making 20 or more employees redundant within a 90-day period, collective consultation rules apply. For fewer redundancies, individual consultation is still required to minimise the risk of unfair dismissal claims.
8. Outsourcing
One way to reduce workforce costs while maintaining operational efficiency is outsourcing. External HR, payroll and training services can provide cost-effective expertise without the long-term financial commitments of hiring full-time staff. Outsourcing also allows businesses to scale resources up or down as needed, improving flexibility in uncertain economic conditions.
9. Managing Workforce Costs Effectively
To balance workforce costs with operational needs, businesses should:
- Conduct workforce planning to assess skills gaps and avoid critical shortages.
- Review contractual flexibility to determine whether changes can be made to hours, roles, or responsibilities.
- Implement cost-effective employee support such as mental health resources and financial well-being initiatives to reduce long-term absence rates.
- Seek professional HR advice to navigate complex employment law requirements and minimise risk.
If you need expert HR support to manage workforce costs effectively while staying compliant with UK legislation, contact us on the phone number above or use our contact form today.
12th March 2025