No quick fix to SME recruitment challenges – WorkLife Small Business Monitor

– 80% of SMEs are being affected by recruitment and retention challenges brought about by stiff competition, ever-increasing salary expectations, and demands for flexible working.

– Just 19% of firms facing recruitment issues expect the situation to improve within the next six months. A quarter (24%) expect to struggle for one to two years

– 40% want to see tax relief on employee benefits; 23% want easier access to labour within the EU

25th October 2022

SME staffing challenges are unlikely to be resolved any time soon, new analysis from WorkLife by OpenMoney reveals.

Of the 750 smaller firms WorkLife engaged with as part of its latest Small Business Monitor, 80% say they are experiencing recruitment and staff retention issues right now.

Stiff competition and high salary expectations taking their toll on recruitment plans

More than half (54%) of those surveyed who are facing difficulties say recruitment is the bigger of the two resource challenges. Of those citing recruitment challenges, just 19% expect to be able to resolve them within the next six months. More than a quarter (27%) believe difficulties will persist for between seven months and a year, with 24% saying between a year and two years.

The biggest worry in recruitment terms is candidates’ salary expectations – and it continues to grow. Almost half (44%) of senior decision-makers surveyed are currently facing this challenge, up from 34% in the spring.

Other notable obstacles are competing with other businesses for talent (24%), and not being able to offer attractive incentives (22%) or flexible working (21%).

Away from the specific business-focused concerns, the study uncovers broader worries about finding the right people to fill roles. Sourcing quality talent with the right experience is troubling 44% of firms, while more general labour shortages are seen as a challenge for a third of SMEs (33%).

Competition and flexible working are the sticking points for retention

Employee retention is also a major issue for many SMEs, with 43% of respondents currently grappling with this challenge.

The key concern here is the threat of competitors offering better pay and benefits, with just under half of respondents (46%) identifying this danger, up dramatically from 28% in the previous study. Similarly, losing employees who want to change career is a worry for a third (33%) of respondents, again up significantly from 21% in spring 2022.

Flexible working demands are high on the agenda too. Staff not wanting to return to the physical workplace is now the second highest concern relating to employee retention and impacts a third (33%) of SMEs, while not offering sufficient flexible working options to meet employee demands is also a growing worry (22%).

Smaller firms want to see support from the government to help them combat recruitment and retention difficulties. Some 40% feel tax relief on employee benefits would be useful to help support the options they can give to support staff, while just under a quarter (23%) would like easier access to labour from within the EU, such as work permits, to support their need for more resource.

Niamh McLaughlin, Managing Director at WorkLife by OpenMoney commented: “It seems it never rains but it pours for SMEs recently. Having adapted to the market changes brought about by Brexit, firms then had to navigate the extraordinary impact and aftermath of the pandemic. Their reward? A prolonged period of high inflation, hitting supply chain costs, utility bills, and staff pay packets.

“Keeping a team together and happy in their roles is a key part of navigating times of difficulty, but it can be tricky for SMEs to maintain that stability when other pressures come into play. With the pandemic having caused a lot of employees to re-evaluate their career plans and work-life balance and many firms already fearing losing workers to competitors, the rising costs of living have only exacerbated recruitment and retention pressures further still.

“More than ever, a cost-effective and tailored benefits package can make all the difference to the attractiveness of the company and employees’ feeling of being valued at work.” WorkLife’s Small Business Monitor is based on research carried out by 3Gem among 750 senior financial and HR decision-makers in UK SME companies with 5 – 250 employees. Fieldwork for the Summer report took place between 17-26 August 2022.