Over the past year, employment costs have soared. The Office of National Statistics and HMRC data shows that employers paid a total of £111bn in gross salaries and employers national insurance in June 2025 – an increase of 4.8% from June 2024.

Amid this increase, businesses are having to evaluate whether the cost of employment is worth it for the benefits of hiring.

Patrick Smith, Managing Director – North East, at recruitment business Broster Buchanan, says in recent years, it’s been difficult for businesses to make these decisions.

“I don’t think, in the post-Covid world, many businesses have had what I would call the luxury of forward workforce planning, where they’ve been thinking about six, 12, 18, or 24 months out,” says Smith. “There’s been very much a focus on the immediate requirements of: what do we need next week, next month, and how are we going to deliver that?”

There are typically two reasons for hiring: replacement of staff who leave and growth or restructuring of the business. So, what do businesses need to consider when evaluating whether to hire or stick in these situations?

1. Check the need is there

Before making a concrete decision on hiring, businesses should also look at whether the need is there for the hire. “Most team leaders think they’re under-resourced but few test this assumption before concluding they need to hire,” says Duncan Lancashire, Team Coach and Director at Fusion Coaching.

He suggests making sure teams are clear on their purpose and then aligning work practices with those.

“First, ensure their team is clear on its purpose and therefore what work it needs to prioritise, and what work it should stop,” says Lancashire.

“Second, ensure that work practices – processes, escalations, decisions, meetings – are designed to enable the team to perform the work it needs to do. Only then, if there is still insufficient resource to complete the priority work, should a business hire.”

2. Check resource availability

Businesses also need to consider the availability of resources and whether it’s possible to hire. “You have to be cast iron confident [in your budget] to undertake a permanent recruitment,” adds Smith. “It might be in that situation, you think to get some interim resource in and see how you go.”

However, the economy has had a shortage of interim resource recently, which means that it can be harder to hire temporary staff. “It’s been actually quite hard for businesses to take on interim resource because the quality in the marketplace has been poorer than clients would like,” he adds.

He says a couple of years ago he was advising clients to not bother to recruit interim resource, as the quality of person they need is “not going to be available as an interim and you’re going to have to hire somebody permanently or not at all”.

While he says the market has loosened up a bit to make it more possible to recruit on an interim basis, it’s ‘still tough’ and employers need to be aware of that if they’re making the choice to not recruit permanently.

3. Effective budgeting for headcount increase

It may be obvious, but whether the business can afford to hire should be a major consideration. “Really it comes back to your budgeted profit and loss account in terms of: what are sales going to be and can you afford the person?” says Smith. “Businesses will not recruit people if it’s not going to make them more profitable at the end of the day.”

However, it’s often not as simple as looking at the accounts, as there are a myriad of external factors that affect budgets, including economic uncertainty, political decisions and the state of the world.

“Looking at economic uncertainty, consumer and business confidence is at a record low,” says Smith. “Businesses are not confident about forward demand, they’re not sure about what sales volumes will look like for the next one-to-four years. They’re not confident that demand will be sustained.”

There is also the question of how tariffs will impact businesses if they are an exporter. Changes to employer’s national insurance contributions and to the minimum wage have increased employment costs and had a knock-on effect on businesses and their hiring ability.

“Pretty much every client that I speak to has an axe to grind where the minimum wage is concerned,” says Smith.

He says the cost is not necessarily just the increase itself, but it’s also the knock on effect on other wages.

“You’re paying pretty much £25,000 a year for somebody at minimum wage, so everybody that was earning, say £26,000 or £28,000 is now looking at that entry level person and saying: ‘I’m doing a job that’s 25% more advanced than that person, so I want to be paid 25% more than them’,” he says. “The consequences have had a much bigger percentage change on the employment bill.”

4. Don’t forget the Employment Rights Act

Within this space is also the added factor of the Employment Rights Act 2025, which is ‘another layer of complexity’, according to Smith. The Act will implement unfair dismissal protection from six months, restrictions on zero-hours contracts, and fire and rehire practices, among other changes.

He says that this legislation combined with minimum wage increases is making it more difficult to hire people with no work experience, as it’s riskier and more expensive.

“If you’re a graduate coming into the workforce, firstly, you’re more expensive. Secondly, if somebody employs you, you’ve got full rights from day one, whereas you wouldn’t have a year ago.

“The likelihood is that business, on average, will probably look to hire somebody who’s got 12-24 months experience and has some semblance of a track record because it presents less risk.”

5. Consider the value of sector experience

Once it’s clear that a new hire is the necessary next step, employers need to balance the risk of hiring by looking at who they might hire. Someone who is already doing the job might be seen as more ‘risk free’ – though that isn’t always the case – or someone from another sector who isn’t doing the exact same role but might bring a fresh perspective to the business.

“Just because someone has experience of the sector and knows the lingo on day one, doesn’t mean they’re the best person in that job in a year’s time,” says Smith. “The truth is it’s really hard when you interview to predict who will be the best person for the job.”

Ultimately, hiring is a risk that employers need to evaluate. How much risk are they willing to take on, and what will the risk be if they do not.