How Finance Leaders Are Managing Rising Employment Costs

Finance leaders across the UK are preparing for a sharp rise in employment expenses in 2025. With upcoming increases in employers’ national insurance contributions (NIC) and the national living wage set to take effect in April, businesses are under pressure to manage these costs while sustaining workforce productivity and morale. Additionally, new government workforce regulations, including the elimination of zero-hours contracts and tighter restrictions on fire-and-rehire practices, are expected to add to the financial strain. Leaders must now strategize on how to accommodate these changes without having a detriment to growth.

The Growing Burden of Wage Costs

Companies that rely heavily on younger employees will feel these changes the most. According to an analysis by the Centre for Policy Studies, employing a single minimum-wage worker over the age of 21 will now cost businesses an estimated £24,806 per year—an increase of £2,367 from 2024. These rising expenses are already prompting tough decisions across industries. Footwear retailer Shoe Zone, for instance, has announced the closure of 20 stores due to escalating employment costs, while fashion chain Next is increasing prices to balance higher wages.

Sacha Herrmann, CFO of spend-management platform Soldo, has predicted cost control in the form of optimising resource allocation and implementing strict financial controls will be a top priority for finance executives. This approach not only prevents wasteful spending but also redirects resources toward revenue-generating activities.

A recent Deloitte CFO survey indicates that many CFOs are planning to curtail spending in response to the NIC hike. Strategies include reducing corporate investments, cutting discretionary expenses, and slowing hiring. The study also reveals a significant drop in hiring expectations—the steepest since the start of the pandemic in 2020. While finance leaders aim to improve productivity and raise prices where necessary, they are hesitant to pass the full cost burden onto customers.

Rethinking Workforce Strategies

To minimise excessive hiring, some finance leaders are reassessing job roles and redistributing responsibilities. Herrmann emphasizes the importance of closer collaboration between finance and HR to ensure strategic workforce planning. “If companies haven’t strengthened this partnership already, now is the time to do so,” he advises.

However, cost-cutting measures may lead to employee concerns, which in turn could increase attrition rates—a costly consequence for businesses. High turnover not only requires additional hiring but can also result in significant knowledge loss. Herrmann suggests that companies evaluate payroll and benefits structures to balance cost savings with retention, especially in highly competitive sectors like IT, where compensation is a key factor in keeping talent.

One potential solution is enhancing existing employee incentives. Herrmann predicts a greater focus on salary-sacrifice programs, which allow employees to exchange part of their salary for non-cash benefits such as larger pension contributions or childcare vouchers. “These initiatives can lower tax burdens for both employers and employees while maintaining morale,” he notes. Transparent communication about such changes is critical, particularly if they affect take-home pay.

Vineta Bajaj, CFO of online grocery retailer Rohlik Group, is also prioritizing retention over new hiring. By reassessing employee perks and offering non-monetary benefits such as flexible working arrangements, extra holidays, professional development opportunities, and wellness programs, she hopes to reduce turnover.

When hiring is necessary, firms are looking for cost-effective alternatives to traditional recruitment methods. Bajaj plans to leverage digital platforms and social media for targeted hiring while incorporating AI-powered tools to streamline the recruitment process and reduce reliance on expensive staffing agencies.

The Growing Role of AI in Workforce Management

To mitigate rising labor costs, finance leaders are also exploring automation and artificial intelligence (AI). Companies like Klarna and Google are actively reshaping their workforces with AI, with Klarna’s CEO suggesting that automation could reduce employee numbers by half. A recent survey by Boston Consulting Group found that over half of UK executives plan to shift investments from human staff to AI in 2025, largely influenced by government reforms.

Historically, businesses have viewed AI as a tool to enhance efficiency and productivity. However, with increasing employment expenses, the focus is shifting toward automation as a direct cost-cutting strategy. According to Simon Heath, a partner at investment firm Heligan Group, AI adoption enables businesses to achieve more with fewer employees, particularly in automation-friendly industries like manufacturing. “With new budget policies in place, I expect a significant shift toward replacing human workers with technology,” he says.

While AI implementation requires upfront investment, many finance leaders believe it will enhance profitability in the long run. Whether these cost savings will lead to further hiring or additional technological advancements remains an open question for the future of workforce planning.