Payroll costs bite as firms hire at lowest rate since pandemic

Times

6 days ago

Companies are planning to hire new staff at their lowest ever rate outside of the pandemic after Rachel Reeves's raid on employer national insurance ­contributions, research has found.
Only 57 per cent of private sector employers plan to recruit staff in the next three months, down from 65 per cent in autumn 2024, the survey of more than 2,000 businesses showed.
Nearly one in three employers said the increases in national insurance contributions and increases in the ­minimum wage had increased their costs to a significant extent. This rose to 50 per cent of employers in the care and hospitality industries.
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When asked which cost increases had the biggest financial impact on their organisation in the past year, 36 per cent of employers said it was the rise in national insurance contributions, 15 per cent said energy and 12 per cent cited minimum wage increases.
The Labour Market Outlook survey was conducted by CIPD, the professional body for human resources staff. The finding came as a separate report on the jobs market from the accountancy firm KPMG and the Recruitment and Employment Confederation found that hiring fell further last month, while growth in starting salaries slowed to its lowest level for more than four years.
The report showed a reading of 40 for permanent placements in the UK. Any figure below 50 represents a decline in the job market.
Jon Holt, the UK senior partner at KPMG, said economic uncertainty, the complexities of AI adoption and global headwinds were 'all weighing on ­business planning'.
He added that weak confidence in the economy and 'increases in payroll costs' were other factors behind the drop in hiring.
James Cockett, senior labour market economist at CIPD, said that business confidence was faltering under rising employment costs, with further risks from Angela Rayner's Employment Rights Bill 'adding to the cost of ­employing people'.
'This is why it's crucial that planned measures, such as the introduction of a new statutory probationary period and process for dismissing new staff, are carefully consulted on to ensure they can work in practice,' he said.
'If new employment laws increase the risk and complexity of recruiting and managing new staff, employers are less likely to take a chance on young workers with limited experience and more development needs.'
CIPD found that confidence was also lower in the public sector. More ­employers expected to reduce rather than increase their workforce in the next three months.
Recruitment pressures were ­particularly evident in care, social work and other healthcare services.
Cockett said it was crucial that ­employers were not forced to scale back on their recruitment and investment in apprenticeships and other forms of training for young people as costs rise.
He added: 'Providing employment opportunities and developing the skills of young people is key to building ­sustainable talent and meeting future skills needs that support long-term business growth.'