How businesses can respond to a more expensive labour market

For many businesses, the labour market is no longer just a people issue. It is now a cost issue, a productivity issue and, increasingly, a strategic one. Rising wage bills, higher employer National Insurance costs and pressure to improve pay, are forcing employers to think more carefully about how they hire, retain and develop talent. In a tighter cost environment, businesses need to be clearer about where recruitment genuinely adds value, where technology can remove manual pressure, and where better workforce planning can reduce churn. Employers who look at role design, training needs and productivity alongside pay are likely to be in a stronger position than those reacting vacancy by vacancy. Practical and long-term thinking is especially important to ensure your business is more profitable and sustainable in the future.

Broadening talent pipeline

The pipeline for future talent is widening, extending beyond universities to include colleges, apprenticeships, school pathways and adult learners building new skills later in their careers, and employers who widen their lens on experience, qualifications and progression are more likely to find capability in a competitive market.

Changes to employment law

At the same time, the rules around employment are changing. The Employment Rights Act 2025 transforms workplace rights and is being introduced in phases across 2026 and 2027. Some changes are already in force, including day-one family leave and unpaid parental leave, stronger statutory sick pay rights and tougher collective redundancy protections, while wider reforms, including guaranteed hours measures and changes to unfair dismissal, are still being phased in. For employers, particularly small and medium-sized businesses that must adapt systems, policies and budgets, the costs will be felt before any longer-term benefit.

Increasing use of AI

AI is also becoming an increasingly important part of the picture too. Business adoption continues to grow, with many exploring how AI can improve efficiency, streamline processes and enhance decision-making. For most businesses, the opportunity is not about replacing people but about improving how work gets done. While many organisations remain cautious about cost, skills and where the technology can be used effectively, businesses that take a measured approach are often finding opportunities to improve productivity without significantly increasing workforce costs.

With this backdrop, the strongest businesses are unlikely to be those chasing the cheapest labour or the newest technology in isolation. Business owners will need to take a balanced view: controlling cost, widening access to talent, complying with changes to employment law and using AI effectively. Having a full grip on the current financial standing of your business will provide you with a clearer picture, allowing you to make informed decisions to build a more resilient and cost-effective workforce for the long-term.