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How is your company coping with the rising cost of employment?

About 80 per cent of UK businesses are struggling with the rising cost of employing staff, according to the British Chambers of Commerce (BCC), but how can companies offset this rather than passing the cost onto customers or employees? The BCC's Workforce Survey 2017 found that four out of five businesses have seen their costs increase this year following changes in employment legislation. Some of the changes that have made a difference to companies include:

  • pensions auto-enrolment, which has meant an increase in costs for 75 per cent of companies;
  • the National Living Wage, which increased in April this year to £7.50 (for over-25s, outside London) and has meant an increase in employment costs for 50 per cent of companies.
  • the Apprenticeship Levy, which led to higher employment costs for a fifth of companies, while 8 per cent said they have been affected by the Immigration Skills Charge.

The survey gathered responses from 1,400 UK businesses and is conducted with Middlesex University London. The BCC is now calling on the UK government to ensure no new upfront costs or taxes are imposed on business for the remainder of this parliament.

The survey also found:

  • based on the forecast that the National Living Wage will increase to £8.75 per hour by 2020, 38 per cent of respondents said in response that they would raise prices of products and services, with a further 25 per cent expecting to reduce pay growth;
  • consumer-facing industries were particularly affected by the rise in the NLW, with 73 per cent of B2C sector firms – including wholesale, retail, accommodation and foods sectors – seeing an increase in costs. In comparison, 56 per cent of manufacturers and 41 per cent of B2B services report higher costs;
  • 25 per cent of businesses say they would respond to future planned increases to NLW by reducing pay growth for staff, 21 per cent by reducing staff benefits and 20 per cent by scaling back recruitment.

CTMfile take: According to the BCC survey, it seems that many firms intend to offset the rising cost of employment by passing the expense onto customers through higher product and service costs – which won't be popular customers. And some companies are saying they'll reduce employee pay growth and benefits, which is bound to be unpopular with staff. Surely there is a wiser strategy to offset employment costs, rather than risk raising the hackles of customers or employees?

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By George Stein on 28th Aug 2017:

Old economic rule, which tends to hold true—if you want less of something, tax it. Which is what is happening here. Living wage and pensions are all good, but labour is already taxed fairly highly. Now, these additional costs will mean greater resistance to hiring, and dampen employment growth. Which is when some politicians will (again) blame businesses for acting rationally.

By Bija Knowles on 30th Aug 2017:

Agreed that smaller firms will have little choice but to cut back on recruitment, which is the opposite of what the government should be trying to achieve. Do larger corporates have any other way to offset the rising cost of employment, other than strategies that damage employees or customers?

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