The hiring pause: what small employers should do

Reacting to: Businesses slam brakes on hiring over Burnham uncertainty (City A.M.) →

City A.M. reports this morning that employers are pausing recruitment while they wait to see what direction the next government takes. Recruiter Morgan McKinley's figures show available jobs in London fell 5% in the second quarter compared to the first, with professional vacancies down 3% on a year ago. British Chambers of Commerce research paints a similar picture nationally: fewer than one in four firms plan to grow their workforce, just over one in ten plan to cut staff — and yet nearly three quarters say they struggle to find the people they need. Morgan McKinley's Mark Astbury puts the pause down to political uncertainty following the Prime Minister's resignation, with many organisations delaying recruitment until the government's economic priorities are clearer.

Why hiring has paused

Look at those two BCC numbers together and something odd appears. Three quarters of firms can't find the staff they need, but fewer than a quarter plan to hire. It suggests businesses don't feel confident enough in their numbers to commit to a hire, and recruitment is often the first thing to be put on hold.

Costing a hire before you decide

For a small employer, work out the full cost of the hire, well beyond the salary, and test it against a cashflow forecast that reflects a tougher trading environment. If the numbers work under pressure, waiting risks losing good candidates to employers who move first. If they don't, you have a reason to hold off.

The arithmetic takes about ten minutes.

What an employee costs on top of salary in 2026–27

Three costs sit above the wage, and all three are fixed by rates you can look up rather than guess at.

Employer's National Insurance is 15% on everything you pay above the secondary threshold of £5,000 a year (£96 a week, £417 a month). That threshold is low, so on any meaningful salary the 15% applies to nearly all of it.

The Employment Allowance then cuts against that. Eligible employers can knock up to £10,500 off their annual employer NI bill. This is the single most commonly overlooked number in a hiring decision, and for a small employer it frequently wipes the NI cost out altogether. One catch matters here: a company whose only employee liable for secondary Class 1 NI is its sole director cannot claim it. Which means the moment that company takes on its first real employee, it becomes eligible — the first hire can be cheaper in NI terms than owners expect.

Pension contributions under automatic enrolment are a minimum of 3% from the employer, on qualifying earnings between £6,240 and £50,270. Enrolment is triggered once the employee earns over £10,000 a year and meets the age criteria. The overall minimum contribution is 8%, with the balance from the employee.

You also can't pay below the legal floor. From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour. It's £10.85 for 18 to 20-year-olds, and £8.00 for under-18s and apprentices in their first year.

Worked example: a £32,000 hire

An illustrative example. You're considering one full-time hire at £32,000, aged 25.

Salary: £32,000
Employer's NI: 15% of (£32,000 − £5,000) = £4,050
Employer pension at 3% of (£32,000 − £6,240) = £772.80
Gross payroll cost: £36,822.80 — about 15% above the salary

Now apply the Employment Allowance. If you're eligible and this hire is your first, the whole £4,050 of employer NI is covered by the £10,500 allowance, and the real cost falls to £32,772.80 — roughly 2.4% above salary rather than 15%. That is a £4,050 swing on a single decision.

Two more things belong in the number before you commit. Statutory holiday is 5.6 weeks a year — 28 days for someone on a five-day week — so you are buying about 46 working weeks a year. And Statutory Sick Pay runs at £123.25 a week, or 80% of average weekly earnings if that is lower.

What the hire needs to generate

Once you have the full cost, work out how much gross profit this person has to generate to cover it.

On the example above, the true cost is roughly £2,731 a month with the allowance, or £3,069 without it. If your gross margin is 40%, the hire needs to add about £6,800 a month in sales to break even at the £2,731 figure. If your margin is 60%, it's about £4,550. Write down the number, then ask whether the role plausibly delivers it — and how many months of ramp-up before it does. Three months of ramp on this hire is roughly £8,000 of cost carried before the first return.

Test it against a bad month

Drop the hire into a cashflow forecast, then knock 20% off your revenue line for three consecutive months and look again. Payroll doesn't flex when sales dip — it goes out on the same date regardless, along with the PAYE and NI you owe HMRC by the 22nd of the following month.

If the business still clears its obligations in that scenario, the hire is affordable and waiting is costing you candidates. If it doesn't, you have found the revenue level at which your current cost base stops working, which you need to know whether you hire or not.

The BCC's Patrick Milnes told City A.M. that "helping businesses invest in skills must be at the heart of their economic plan". But you don't have to wait for Westminster to get clarity on your own payroll. That's what our Payroll & Pensions service and Budget and cash flow forecast work are for: knowing what a hire costs you, month by month, before you commit. We've also written the detail up in full — what a new hire actually costs, our guide to hiring your first employee, and payroll for your first hire if the admin side is what's holding you back.

AJ

Andy Jackson

Straight Talk. Real Solutions. Better Business. I'm here to make your business more efficient and client-focused — no fluff, just honest advice and real results. I work with businesses that want straightforward, practical advice on how to improve. I'm passionate about creating real impact through digital transformation, improved processes, and a laser-focus on client experience. andyjackson.com

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Common questions

Am I eligible for the Employment Allowance?

Most businesses and charities with employer Class 1 NI liabilities can claim up to £10,500 a year. The exclusion that catches small companies is the sole-director rule: if the only employee liable for secondary Class 1 National Insurance is a single director, the company cannot claim. Take on one genuine employee and eligibility usually follows. Other restrictions apply to workers engaged under off-payroll rules, to most domestic staff such as nannies and gardeners, and to groups of companies, where only one company in the group may claim. It is claimed through your payroll software rather than applied automatically, so an unclaimed allowance simply sits there unused.

Is it cheaper to use a contractor instead of hiring?

Sometimes. A contractor carries no employer NI, no pension contribution and no holiday pay, so the headline saving looks large — until you compare day rates, which are typically well above the equivalent salaried cost because the contractor is carrying those risks themselves. The bigger issue is status: if the working relationship looks like employment in substance, HMRC can treat it as employment regardless of what the contract says, and the liability lands on you. Contracting suits genuinely project-based, short-horizon work. Using it to dress up a permanent role is a false economy.

How much notice do I get before payroll costs hit my bank account?

Less than most owners plan for. Net wages leave on payday, and the PAYE and National Insurance you have deducted, plus your employer NI, are due to HMRC by the 22nd of the following month if you pay electronically — the 19th if you still pay by post. Pension contributions have their own deadline set by the scheme. So a hire starting on the 1st produces a wages payment that month and an HMRC payment three weeks later, and the two together are the number that has to clear. Forecast the HMRC payment separately: treating it as an afterthought is one of the most common causes of a payroll cashflow squeeze.

Should I really hire into an uncertain market?

The answer differs by business. Run the full cost, work out the revenue the role must generate at your gross margin, add a realistic ramp-up period, then stress the forecast by cutting revenue 20% for three months and see whether you still clear your obligations. If you do, uncertainty in the headlines is not a reason to wait, and a softer recruitment market usually means better candidates are available than in a tight one. If you do not, you have a genuine answer — and a clear target for what has to change first.

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What the pause in hiring means for small businesses