SMEs hold back on recruiting, key employment law reforms, and SMEs face a ‘cost of business’ crisis
If you’re running an SME, today’s post is just for you. We explore the recent drop in job vacancies as SMEs hold back on recruiting staff, give you the run down on the latest employment law reforms, and highlight the financial crisis businesses are facing on a day to day basis. Read on to find out more.
UK vacancies fall to lowest level since 2014 as hiring slows
The UK jobs market showed fresh signs of strain in the latest labour market figures, published by the Office for National Statistics on 18 August 2026.
Job vacancies fell to an estimated 707,000 in the three months to July, down 6,000 (0.8%) on the previous quarter. Outside the pandemic period, that’s the lowest vacancy count since September to November 2014. The ONS said feedback from its Vacancy Survey pointed to smaller firms holding back on recruitment because of rising labour and operating costs.
Despite the weaker hiring picture, the headline unemployment rate held at 4.9% for people aged 16 and over in the April to June quarter, up 0.2 percentage points on the year, but down 0.1 points on the previous quarter. The employment rate for 16- to 64-year-olds stood at 75.1%, while economic inactivity was largely unchanged at 20.9%.
On pay, annual growth in regular earnings (excluding bonuses) in Great Britain was 3.5% in April to June, with total earnings (including bonuses) up 4.1%. The gap between sectors was stark: public sector regular pay grew 6.1%, reflecting the timing of NHS pay awards, while private sector growth slowed to 2.8%. Adjusted for inflation using the Consumer Prices Index including owner occupiers’ housing costs (CPIH), regular pay rose just 0.5% in real terms.
Separately, payrolled employee numbers continued their two-year downward trend, falling 78,000 (0.3%) year-on-year to 30.3 million by June, with an early estimate suggesting a similar picture into July.
Taken together, the data points to a labour market that remains subdued rather than in freefall; steady unemployment but weakening demand for new hires and softer private sector wage growth.
See Labour market overview, UK – Office for National Statistics
What should your employment law reform priorities be?
Acas’s Julie Dennis has set out how HR teams should approach the Employment Rights Act 2025, one of the most significant changes to UK employment law in recent years, which became law on 18 December 2025 and is being phased in through 2026–2027.
Several changes are already in force, including:
- Statutory sick pay from day one (with the lower earnings limit removed).
- Day-one paternity and unpaid parental leave rights.
- A new bereaved partner’s paternity leave.
- Stronger whistleblowing protection for those reporting sexual harassment.
For these changes, employers should have already reviewed related policies, payroll, and manager guidance, and communicated with staff. It is important to be clear that day-one leave rights don’t always mean day-one pay rights.
Further reforms are still to come, covering unfair dismissal, harassment, flexible working, and zero-hours contracts, meaning businesses need a staged plan rather than treating this as a single change with one start date. This should not be a single compliance project; regular policy reviews will be essential, and businesses should not wait for the remaining reforms to take effect.
The compliance environment is also tightening. The new Fair Work Agency will consolidate enforcement powers, and employers must keep compliance records for six years, including holiday pay and annual leave records.
Acas recommends businesses:
- Know the timeline: separate what has already changed from what is expected later.
- Prioritise policy and contract review, especially sickness, family leave, flexible working, harassment, dismissal and records.
- Train line managers. They need to understand the processes they are expected to follow and feel confident having early, fair and consistent conversations.
- Strengthen compliance systems. Review how decisions are recorded, how evidence is kept and how employees are told about their rights.
Acas points readers to its dedicated Employment Rights Act 2025 hub and a free recorded webinar for further detail.
Cost of business crisis for British SMEs
UK businesses are facing a “cost of business crisis”, according to the British Chambers of Commerce (BCC). Its new cost-stack calculator shows government policy alone has pushed up an average firm’s expenses by 70% over the past decade, adding roughly £827,000 a year in costs for a typical mid-sized business. About a quarter of the rise stems from the increase in employer National Insurance contributions, with the higher minimum wage and mandatory pension auto-enrolment also major contributors.
The BCC warns this cost burden is pushing firms into a “risk-aversion cycle”, denting SME investment and confidence. The 70% figure excludes tariffs, inflation, and Brexit effects, meaning real cost increases are likely higher.
While businesses cannot control policy costs, they can review pricing, supplier contracts and operating efficiencies. Benchmarking your position against similar businesses may also help identify where cost increases can be recovered or reduced.
You can use the BCC’s cost-stack calculator to see how your business compares and submit your figures anonymously to help demonstrate the true scale of cost pressures facing British businesses.
Contact us if you would like assistance with cashflow forecasting, margin and pricing review or client profitability analysis.
See Government policies push business costs up by 70 per cent in a decade and Cost Stack Calculator – British Chambers of Commerce