
UK business leaders are worried about the cost of employment in 2025 – and for good reason. They have only a few months to prepare for the increases in employers’ national insurance contributions (NIC) and the national living wage, which take effect in April. The abolition of zero-hours contracts and restrictions on fire-and-rehire practices, laid out in the government’s new workforce reforms, are also expected to increase staffing costs. Employers must work out how to accommodate these changes without sacrificing growth and productivity.
For businesses that rely on younger workers, these changes could significantly impact the bottom line. This year, employing one minimum-wage worker, aged over 21, will cost a UK employer an average of £24,806, according to analysis by the Centre for Policy Studies. That’s £2,367 more per person than in 2024.
The changes are already forcing businesses to make tough decisions. For instance, Shoe Zone, a footwear chain, says rising employment costs are the reason for its decision to close 20 stores this year. Meanwhile, the fashion retailer Next is raising prices to balance the increase in staff wages.
Sacha Herrmann, CFO at Soldo, a spend-management platform, says cost control will be top of mind for many finance chiefs. “This means optimising resource allocation and implementing robust financial controls to reduce unnecessary expenses without hindering growth,” he explains. “This approach not only curtails wasteful expenditure but frees up resources to invest in high-value tasks that can drive revenue.”
According to Deloitte’s most recent CFO survey, a majority of finance leaders plan to reduce costs in response to the forthcoming NIC hike. For many, this will mean cutting corporate investment and discretionary spending and pausing hiring efforts. The survey reveals a drop in CFOs’ hiring expectations – the sharpest decline since the start of the pandemic in 2020. Finance chiefs will also look to boost productivity and raise prices, but they appear reluctant to pass on cost increases to their customers.
Rethinking people strategies
To help limit unnecessary hires, Herrmann plans to review job descriptions and reallocate responsibilities across the organisation. He’s also considering alternatives to full-time employees, such as part-time roles or outsourcing specific tasks. “CFOs must work more closely with HR to gain a holistic view of the company’s needs and challenges,” he says. “If this collaboration isn’t already in place, now is the time to strengthen it.”
Such changes may give rise to anxieties in the workforce, which could increase employee attrition – a costly consequence. Outgoing staff may need to be replaced and, over time, elevated attrition rates can lead to significant knowledge loss in the organisation. Herrmann says: “By evaluating payroll and benefits packages, finance teams can help calculate the potential return on investment of reducing attrition costs, especially in competitive industries like IT, where compensation packages can significantly impact retention.”
I think we’ll see a huge uptick in businesses saying, ‘Why don’t we just swap people for machines?’
Doubling down on existing incentives can help keep staff onside. Herrmann expects greater emphasis on salary-sacrifice initiatives, which offer employees non-cash benefits such as larger pension contributions and childcare vouchers, in exchange for a portion of their salaries. “This not only helps reduce costs and tax burdens on an employer but can also positively impact employee morale, as it lowers their tax liability too,” he says. Any change must be clearly communicated, however; especially if it means a reduction in employees’ take-home pay.
Vineta Bajaj, CFO at Rohlik Group, an online grocery retailer, is also aiming to reduce turnover and limit hiring. In an effort to retain good staff, she is re-evaluating perks and emphasising non-monetary incentives, including flexible working, additional holidays, professional-development opportunities and wellness initiatives.
However, sometimes firms must make new hires to maintain sufficient staffing levels. Rather than relying on expensive agencies or headhunters, Bajaj plans to optimise recruitment by using digital platforms and social media, which offer targeted and cost-effective options. She is also investing in automation tools, such as AI-powered screening, to help streamline the recruitment process.
Swapping people for machines
Finance chiefs are also exploring the potential of AI to reduce headcount. Prominent organisations are already using the technology to reshape their workforces. Klarna‘s chief executive, Sebastian Siemiatkowski, stated that AI will help the buy-now-pay-later group cut its staff numbers in half, and Google has outlined plans to restructure its workforce ahead of a push for increased AI adoption.
Just over half of UK executives plan to “redirect investment from staff to AI” in 2025, according to a survey by Boston Consulting Group (BCG). The consultancy polled 251 businesses with 50 or more employees and determined that government reforms are a major driver for this shift.
CFOs will need to work more closely with HR to gain a holistic view of the company’s needs and challenges
Until recently, finance leaders had focused on AI’s ability to help employees save time and boost productivity. However, in light of rising employment costs, the BCG findings suggest that AI implementation is increasingly seen primarily as a cost-cutting move, rather than an efficiency strategy.
According to Simon Heath, a partner at Heligan Group, a UK investment firm, buying into AI is simply a way for businesses to do more with less. This is especially true in sectors such as manufacturing, he explains, where roles are more easily automated. “With the new budget policies coming into play, I think we’ll see a huge uptick in businesses saying, ‘Why don’t we just swap people for machines?’,” he says.
Despite the upfront costs, which finance chiefs have been grappling with for a while, Heath believes implementing AI will increase the profitability of most businesses in the long term. Whether any of that additional profit will go towards hiring more human workers remains to be seen.


UK business leaders are worried about the cost of employment in 2025 – and for good reason. They have only a few months to prepare for the increases in employers’ national insurance contributions (NIC) and the national living wage, which take effect in April. The abolition of zero-hours contracts and restrictions on fire-and-rehire practices, laid out in the government’s new workforce reforms, are also expected to increase staffing costs. Employers must work out how to accommodate these changes without sacrificing growth and productivity.
For businesses that rely on younger workers, these changes could significantly impact the bottom line. This year, employing one minimum-wage worker, aged over 21, will cost a UK employer an average of £24,806, according to analysis by the Centre for Policy Studies. That’s £2,367 more per person than in 2024.
The changes are already forcing businesses to make tough decisions. For instance, Shoe Zone, a footwear chain, says rising employment costs are the reason for its decision to close 20 stores this year. Meanwhile, the fashion retailer Next is raising prices to balance the increase in staff wages.