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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