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The Rising Cost of Employment: Will Businesses Turn to AI and Outsourcing?
This article was published in the March/April 2025 edition of London Business Matters.
The forthcoming increase to national insurance (NI) to 15% and the lowering of the threshold from £9,100 to £5,00, means that businesses are facing a significant increase in their payroll costs. With increased workers’ rights under the Employment Rights Bill (ERB) also set to be rolled out over the next 12-24 months, businesses are assessing their workforce strategies, and AI adoptions and outsourcing are emerging as key considerations.
Businesses that may have been considering AI automation are now giving serious consideration to its’ value not only from a cost saving perspective but also an employment risk perspective. We are already seeing how basic administrative and routine tasks can be AI generated; customer service AI-powered chatbots and virtual assistants are fast replacing human agents for handling routine enquiries and AI tools are used to streamline hiring processes, automating CV screening, interview scheduling and even employee onboarding. Professional services industries are also not immune from the allure of AI with financial reporting, invoice processing and payroll management being automated reducing the need for manual intervention.
Businesses are also contemplating outsourcing tasks, not only as a cost saving measure but also to reduce their exposure to employment claims associated with upcoming changes under the ERB. The proposals include introducing day one unfair dismissal rights, extending the eligibility period for making a claim from 3 months to 6 months, restricting the circumstances in which an employer can vary employment terms and many other changes.
Outsourcing allows businesses to access lower labour costs and avoid the pressures of employment compliance, which is expected to have a greater impact on SMEs. Offshoring functions such as IT support, accounting and back-office operations gives businesses the opportunity to scale operations up and down more flexibly without the complexities and inherent risks associated with the hiring and firing of staff.
While job cuts in many sectors are likely, labour-intensive industries such as retail and hospitality are expected to be impacted the most. Those working part-time or on the lowest hourly pay, who were previously not eligible for employer NI, will now be brought into the fold from April 2025 and businesses will inevitably be looking to reduce headcount.
As businesses contemplate various strategies to manage increased costs and risk, a balance must be struck with maintaining quality service and a skilled workforce in what remains an increasingly competitive market.
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Quastels Acts for Wavertree Bay Investments in Acquisition of SFI Logistics
Quastels LLP is pleased to announce that it acted for Wavertree Bay Investments in its recent acquisition of SFI Logistics.
SFI provides storage and logistics services, primarily for the office industry and was an important strategic purchase as part of Wavertree Bay’s broader investment strategy in the storage and logistics sectors.
Quastels LLP, led by corporate partner Marcus Rebuck, provided comprehensive legal advice throughout the acquisition process, working through the financial and contractual matters to ensure a smooth and successful completion. Marcus was supported by colleagues in the corporate, commercial real estate, and employment teams. The wider team’s expertise and commitment were instrumental in achieving the client’s objectives.
Dean Jaraj, Director of Wavertree Bay Investements commented:
Read More“We are extremely grateful for the outstanding support and guidance provided by Quastels throughout the acquisition process. Marcus and the whole team’s attention to detail and proactive approach enabled us to work through the challenges and complete the transaction efficiently. We look forward to continuing our partnership with Quastels as we integrate our new business and pursue future growth opportunities.”
What Went Wrong? A Case Study in Employee-Manager Miscommunication
In this video, Employment Partner Dipti Shah examines a real-life breakdown in the employee-manager relationship, through a WhatsApp thread. With over 25 years of experience advising both businesses and individuals, Dipti has seen how common oversights such as insufficient training and inadequate support for managers, can escalate into avoidable conflict. In this case study, she dissects what went wrong at each stage of a workplace conversation and outlines what should have happened to preserve a productive and respectful working relationship.
The Retention Crisis
In the UK, nearly one in four workers is planning to quit in 2025. Staff retention is becoming an increasingly urgent issue, with workplace trends like “Revenge Quitting” and “Quiet Quitting” taking their toll on morale and continuity. The financial impact is significant: the average cost of turnover for an employee earning £25,000 or more £30,614, according to Oxford Economics. Poor management plays a central role in this trend. When employees have both a great manager and a great leader, their commitment to stay rises to 94%. But that figure drops sharply, to 35%, with a good manager and poor leader, and to just 19% when both leadership and management are lacking.
Case Study: What Went Wrong?
In the featured case study, a manager asked an employee to reschedule their annual leave at the last minute to attend a client meeting. The employee offered a compromise by suggesting they dial in remotely during their holiday, but the manager deemed this insufficient. What followed was a prolonged back-and-forth, culminating in the manager threatening repercussions for the employee’s career. This situation underscores the pressures that managers themselves face, but also highlights the importance of managing client expectations and ensuring clear communication throughout all levels of the business. Without proper guidance, even well-meaning managers can make decisions that damage trust and morale.
Key Takeaways
Managers need just as much support as the teams they lead. To prevent breakdowns like this one, it is essential that newly promoted managers receive thorough training, both on the responsibilities of their new role and on how company policies should inform their management style. Employees are entitled to disconnect during their annual leave, and penalising them for exercising this right is unacceptable. Ultimately, a well-supported manager is far more likely to foster a positive, engaged, and committed team.
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