Since Labour came to power, businesses have faced numerous increases to the cost of employment. To deal with the pressure, firms are reviewing their workforce plans for the year ahead.
The Autumn budget saw rises in employers’ national insurance contributions (NICs) and the minimum wage. Meanwhile, an overhaul of workers’ rights in the employment rights bill could cost firms £5bn, according to the government’s own estimates.
The impact on the labour market is already being felt. The latest figures from the Office for National Statistics show a cooling jobs market as unemployment rose 4.3% and the number of vacancies fell by a further 35,000, marking the 28th consecutive monthly decline.
Alexandra Hall-Chen, principal policy advisor for employment at the Institute of Directors, says the numbers indicate a “concerning trend of employer caution regarding hiring staff. The measures in the employment rights bill and the large increase in employers’ NICs are taking a serious toll on employers’ hiring intentions.”
According to Laura Bunn, HR director and board member at motorway services operator Roadchef, the situation is creating a headache for businesses. The NIC increase is a “big cost”, she says, adding that Roadchef is examining budget reductions elsewhere to offset the added tax burden.
One area where companies can reduce costs is in recruitment. Although this is unlikely to entirely offset the tax increases faced by businesses, reviewing the hiring process could give businesses the scope to grow their workforce at a time when the cost of employment is on the rise.
Here are seven options for employers as they look to cut hiring costs.
Review recruitment processes
There are several hidden costs in the recruitment process, such as the time hiring managers must take out of their schedule to interview candidates. There is also the potential for lost productivity while seeking a replacement for an outgoing member of staff. This can make finding efficiencies valuable.
Streamlining the hiring process by reducing the number of interview stages can be an effective solution. Reviewing job ads also helps ensure they provide a proper job description, salary expectation and work location.
“Although this might not be an obvious way to save money, it’s going to prevent companies from hiring the wrong person in the first place, which can represent a huge cost saving,” says Bar Huberman, HR strategy and practice lead at HR solutions provider Brightmine.
“Be really clear about what the job entails, flexible working opportunities and a salary range to save time on interviewing people who wouldn’t have applied to the role if they’d known this information beforehand.”
Do your research
Companies should ensure they’re pitching the salary at the right level for the role being advertised. This will involve researching the market and benchmarking against what other companies are offering.
“It’s really important to get this right, because if you’re offering a salary that’s too low then you can put people off applying. And if it’s too high, then you’ll be spending too much money,” Huberman adds.
Consider employee referral schemes
Recruitment agencies are often one of the biggest expenses when hiring. As a result, some businesses are turning to their own employees to help source potential new recruits.
“Referral schemes are seen as a highly cost-effective way to find new talent,” says Michaela Gartside, director of the HR Dept, which provides outsourced HR expertise for small businesses. “We are even seeing some businesses use employee referral schemes as their only method of recruiting new staff,” she adds.
While employee referral schemes are a cheaper alternative to paying for recruiters, there is reason not to rely on them entirely. These programmes can create cultural homogeneity within organisations, warns Huberman.
“If you’re getting people to recommend those they’ve worked with in the past or friends, there is a risk you’re going to replicate the people you already have within the business,” she says. “There’s evidence they can reduce the diversity within an organisation.”
Leverage technology and data
Companies can speed up several aspects of the recruitment process by leveraging technology and AI. Developments such as LinkedIn’s recently announced Hiring Assistant promise to automate many elements of the pre-offer workflow.
Well-established recruitment technologies – such as CV scanning systems and video interview platforms – can also be useful for saving recruitment teams’ time. Huberman advises companies to map out their recruitment process and review where time is being spent. “CV scanning is quite an obvious area where AI could really help,” she says. “Companies are receiving more applications than ever before and it’s one area where more recruitment time is being spent.”
Data is another aspect that is often overlooked, according to Elisabetta Bayliss, chief operating officer for recruitment firm Hays. Using internal data to inform recruitment decisions can help companies identify areas to save costs.
“Your workforce data might show you already have the skills in-house, or you could be carrying significant costs from contingent workers, consultants, contractors or temporary workers,” she says. “Understanding your data and the shape of your resources is one way you can mitigate employment cost increases.”
Outsource specialist roles
Outsourcing can offer a cheaper alternative to direct employment. “Companies should be mindful that not all roles need to be in-house,” advises Ruth Cornish, founder and director of HR consultancy Amelore. “Outsourcing specialist roles like marketing and communications can be beneficial from a cost, logistics and time perspective.”
Promote from within
A strong talent pipeline can help businesses overcome short-term recruitment challenges. Crisis hiring, where companies are forced to hire quickly for an essential role, can be excessively expensive, Bayliss warns, so having a good talent pipeline and effective workforce plan is essential.
At Roadchef, 65% of management vacancies are filled with internal candidates. Bunn says investment in training and development and providing staff with clear career pathways has been crucial to this success.
“Companies should make sure they’re not forgetting their internal talent,” Bunn says. “Even if someone’s not the finished article, you can easily get them there and it’s often cheaper than recruiting externally.”
Address retention issues
Replacing outgoing members of staff is costly. Recruitment consultancy Omni RMS estimates that a company hiring 100 people per year could be losing more than £500,000 in hiring and replacement costs.
“Recruitment isn’t just consigned to the advertising and recruitment process,” Bunn explains. “It’s the uniform, the training, the time and resources required each time a new employee walks through the door, so the real cost of recruitment is a lot higher than we often imagine.”
Perhaps the most effective way to reduce recruitment costs is to improve employee retention. “The cost of hiring is phenomenal, so the more you limit your churn the more you can cut down on unnecessary costs,” says Bayliss.
Companies should focus on onboarding. Four in 10 (41%) employers have had new recruits resign within their first 12 weeks of employment, according to Resourcing and talent planning report 2024 from the Chartered Institute of Personnel and Development (CIPD).
“It’s crazy because businesses spend so much money recruiting people and then lose them immediately,” Huberman says. “They should focus on training line managers and establishing a relationship with new employees.”
