Recruitment challenges intensifying for UK SMEs

–  17% of SMEs see their ability to recruit and retain employees as one of the biggest challenges facing their business

– More than half of smaller companies have fewer staff within the business than before the start of the pandemic, but 43% will be looking to recruit come the end of September

– Two-thirds (66%) of SMEs are concerned about how attractive they would appear to potential talent when compared with their peers.

Concerns among SMEs have begun shifting from laying off employees to recruiting new talent, WorkLife’s latest Small Business Monitor reveals.

Only 14% of firms surveyed now consider laying off staff to be one of the biggest challenges currently facing their business, down from 25% when WorkLife last undertook the study in March 2021. Meanwhile 17% see their ability to recruit and retain employees as a major hurdle.

When looking at retaining existing employees, keeping existing employees engaged remotely was cited as a challenge by more than a quarter of SME decision makers (26%). Sourcing quality candidates with relevant experience (23%) and the cost of hiring were also among the most prominent challenges considered by smaller businesses, along with a lack of understanding around how employees want to be rewarded and incentivised (23%) and the cost of doing so with existing employees, in line with their expectations (20%).

Just 6% of respondents said that they hadn’t experienced any issues in the recruitment and retention of employees.

More than half (56%) of SMEs have fewer staff working within the business than before the start of the pandemic, while 18% say they have been able to grow the size of their workforce. It seems firms are keen to reverse this trend however, with 43% of respondents saying they will be looking to recruit when the furlough scheme comes to an end.

This focus on recruitment extends beyond the SME sector, with the Office for National Statistics (ONS) recently reporting that job vacancies had reached a record high across the UK overall [1]. Against this backdrop, two-thirds (66%) of SMEs surveyed are concerned about how attractive they would appear to existing and potential talent when compared with their peers. This figure peaks at 73% for London SME decision makers.

Encouragingly, smaller businesses are recognising the value of employee benefits in helping them set themselves apart from the competition, with increased flexible working options (19%), help for mental wellbeing, such as how to manage stress (18%), and green benefits (16%), such as charitable donations via salary sacrifice and electric vehicle purchase schemes, being considered to be most desirable.

Recognising their employees’ need for financial support in difficult circumstances, firms are also seeing the value of more practical support in areas such as income protection and life assurance (14%), and better car/home insurance rates (12%) scoring as well as the more traditional benefits like shopping and gym discounts (both 13%).

Steve Bee, director of WorkLife by OpenMoney, commented: “While it’s positive to see so many firms looking to grow the size of their workforce once again, a number of hurdles surrounding recruitment and retaining staff are starting to emerge among UK SMEs.

“A positive from these challenges, however, is the number of firms understanding the value that greater flexibility and employee benefits can bring for connecting them more closely with their employees. The focus on employee wellness, both in mental health and financial terms, is particularly encouraging – with attention moving on from ‘traditional’ perks like shopping discounts and gym membership schemes.

“The end of the furlough scheme in September will be a watershed moment for many employers, with their ability to retain workers set to play a major role in the strength of a company’s recovery. As the seeds of recovery grow further, it’s important that those making the decisions within smaller companies continue with their commitment to the wider support that they can offer their employees, which will only help build closer working relationships. This in turn may not only encourage them to stay and strive to support the company’s recovery, but also inspire new talent to want to join a successful and caring business.”

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 15-9 July 2021 and 14-22 March 2021 for Spring.