Access to Labour - Where has everybody gone?

03/03/2022.
This is the question being posed by many business leaders at present. Access to labour is a real challenge for businesses in 2022 following the impact of Brexit and the Global Pandemic.

 

This has created a real shortage in the labour market and made it extremely competitive thus, by the rules of supply and demand, further fuelling increases in costs for business across many industries (transport and logistics for example), against a backdrop of rising fuel and energy prices, high shipping costs and further proposed interest rate rises.  Furthermore, new government policy sees an increase in the National Living Wage of 6.6% in April which will particularly hit industries such as retail and hospitality who have already had a torrid time, and the government seem intent on proceeding with the 1.25% increase to national insurance despite mounting pressure, which is due at the same time. Access to labour and managing these costs is clearly a key topic for 2022, and vital for the recovery of many businesses out of the Pandemic. 

However, in true entrepreneurial fashion let’s be positive, SME business owners have proven themselves to be amazingly resilient in these times and are used to managing uncertainty. Here we look at some options for business leaders:

 

Automation

This will of course depend on the industry, but automation continues to be a major disruptor and opportunity for many businesses, perhaps even accelerated as a result of the challenges businesses face.  Business leaders should look at their existing systems where they are otherwise labour-intensive and see if certain processes and tasks can be automated.  Admittedly this does come with further investment but longer-term the business would expect to experience the benefits of this in terms of profitability and productivity. 

There are some healthy tax incentives on offer also in the form of the enhanced annual investment allowance, maintained at the £1,000,000 level until March 2023, as well as the ‘super-deduction’ designed to give 130% tax relief on certain assets.  It is also always worth enquiring as to what grants are available to support any investment.  Understandably for some businesses, this will seem a pipe dream with wounded bank balances and the concern over interest rates for further borrowing, albeit for others where cash is currently parked on the balance sheet this possibly presents a great opportunity.  There also continues to be incentives available for investments in energy-efficient technologies as sustainability becomes more of a driver and growing in strategic importance.

 

Keep it simple

Much aligned with the point above, it is important that businesses review their existing processes and output from existing staff to see where gains can be made.  Whilst the expected spike in unemployment following the end of furlough hasn’t been seen to materialise, one of the outcomes of the Pandemic was that many businesses found alternate ways to utilise existing staff and maximise profitability, often out of the unfortunate necessity to do so with those having to isolate and stresses on finances.  One of the real challenges business leaders face in a growing business are putting in place effective systems and structures, but also the unintended introduction of red tape and additional layers of hierarchy thus causing inefficiencies.  It is important these are reviewed to ensure these are fit for purpose and the potential to look at upskilling existing staff with additional training to widen their skill set and potentially absorb additional duties.  This helps ease labour concerns but is also a significant motivation for the employee if managed appropriately.  It also structures the business much more effectively for future growth.

 

Outsource

Outsourcing is not a new concept but is definitely an avenue to revisit.  As businesses look to make themselves more agile, outsourcing either in the UK or overseas can provide that access to labour but also provide possible additional benefits in terms of quality, flexibility and reliability of service.  Given the anticipated increases in labour costs, this is also attractive as the business does not take on the additional responsibilities that come with recruiting directly into the business.  It is also very scalable in terms of growing your business.  For example, we offer financial outsourcing services to businesses whereby we can take over as little or as much of the back-office finance function as is required, whilst providing critical business support also, and many businesses have benefitted from this throughout the Pandemic.  We can also provide an independent review of your finance function to ensure it is fit for purpose and offer recommendations on critical areas for improvement.

 

Widen the pool

The Pandemic has certainly acted as a catalyst for remote working.  The workplace has become less of a factor in many industries and every indication points to this now remaining in some form going forwards.  This does present opportunities for businesses where this is an option and, whilst previously someone typically had to be local to the business, someone can now just as easily work remotely across the country.  Businesses should look at where this is practicable and ensure they are reviewing the whole of the market where feasible to access the best talent. Furthermore, certain studies have suggested that remote/flexible working is now almost as important a factor as pay in their choice of employment.

Reports also suggest that the “economically inactive” are at record levels, being individuals who have taken early retirement, or gone into study etc as a result of the Pandemic.  Again, in a competitive market, businesses should look to target these groups to ensure valuable skills are not being bypassed.

It is also vital that in terms of recruitment, businesses are very mindful about the language they use and the proposition available.  Diversity and Inclusion is key and again it is imperative that business leaders are accessing the best talent available and providing equal opportunities for all.

 

Look after your current employees

Of course, whilst there is significant pressure in accessing labour, it is key that business leaders look after their existing employees.  In a competitive environment, there is the risk that we see greater attrition in certain industries and increased turnover levels, as competitors target your workforce to solve their own challenges.  Whilst pay is clearly always an important measure, particularly given pressures on real wage inflation and disposable income, there are other ways to motivate and incentivise your employees also.  Note the points above regarding attracting new staff into your business, and equally these measures need to apply to the existing workforce also.  Of course, if your existing workforce are engaged then it could increase the chances of them referring someone into the business also, possibly incentivised through the introduction of a referral scheme.

There are other ways to incentivise and retain your staff also outside of salary, in terms of certain key benefits that could be made available (a key part of what they view as the ‘remuneration package’. There are of course many benefits you can provide to employees, but these not only cost the business in terms of providing the benefits and NIC costs but also these are taxed on the individual employees. The most tax-efficient form of providing benefits to employees is through a Salary Sacrifice scheme. Salary sacrifice allows an individual to sacrifice a proportion of their salary to convert into various benefits (e.g. pension contributions, gym membership, car parking etc) which is attractive as there are NI savings for both the employee and employer.  Equally share option schemes (for example but not limited to the popular tax-advantaged EMI scheme) can be offered to key employees to align them with the objectives of the business and tie them in for a period of time so they share in the future growth and success of the business.  As with all matters, in particular tax, it is important to seek expert advice on these areas first as the impact can vary from business to business.

 

We are here to help

These are indeed challenging times and in practice, it is important that all options are considered.  Should you need any assistance with any of these challenges, whether it be tax schemes, financial outsourcing, review of processes or simply someone to use as a sounding board, please speak to us and we will be happy to help.

If you have queries surrounding this and would like to discuss further, please contact our Client Director, Liam Ruffle or your usual contact.

 

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