One in three UK businesses has rolled back hiring plans in 2025 due to surging employment costs, according to new research from global talent solutions partner Robert Walters. The data reveals that high inflation and increased tax obligations, notably National Insurance Contributions (NICs), are forcing companies to delay pay rises and reduce contributions to employee benefits.
The findings highlight a precarious balancing act for HR leaders who must manage ballooning cost bases without triggering mass dissatisfaction or higher turnover.
Pay, Hiring, and the Cost Crunch
The research paints a clear picture of how UK businesses are managing financial pressure:
- Hiring Slowdown: 31% of UK employers have slowed down hiring or rolled back recruitment plans. A further 41% have implemented outright hiring freezes, intensifying competition for essential skills.
- Delayed Compensation: Over half (52%) of UK employers are delaying pay rises to offset spiked costs. This is creating a serious issue for talent retention, as 53% of professionals already report feeling underpaid.
- Impact on Confidence: Chris Eldridge, CEO of Robert Walters UK&I, cautions that delaying pay rises can “significantly knock employee confidence,” risking mounting dissatisfaction and increased turnover rates.
In this climate, the report suggests professionals are increasingly prioritising job stability over satisfaction, a trend that is likely to have serious repercussions for productivity levels across the country.
Pensions and the Search for Cost-Saving Benefits
Beyond immediate compensation, the financial pressures are directly affecting long-term employee benefits, particularly pensions.
- Minimum Contributions Rise: There has been a 13% increase in UK Small-to-Medium Businesses (SMEs)contributing only the statutory minimum (3%) to employee pensions in 2025, compared to the previous year.
- Reduced Enhancement: Only 11% of all surveyed companies now offer pension contributions above the 10% mark.
As tighter budgets force businesses to cut back on enhanced pension benefits, many are turning to strategic alternatives that benefit both the employer and the employee.
Salary sacrifice schemes (also known as SMART schemes) are rapidly growing in popularity, with 61% of professionalsnow reporting that their employer uses them. These schemes allow employees to contribute a portion of their pre-tax salary toward pensions, reducing tax obligations for both parties.
“Salary sacrifice schemes are increasingly seen as a key measure to both grow employee’s pension pots and help protect businesses from increased tax obligations,” Eldridge notes, predicting their usage will increase further following recent rises in employer NICs.
With financial pressure set to persist, strategies focused on enhanced workforce planning, small spot bonuses, and benefits that offer mutual tax savings—such as salary sacrifice—will be critical for balancing cost management with talent retention over the next 12 months.