Hiring Has Become “Too Difficult” for Many SMEs and HR Is Feeling the Pressure
- 5 Min Read
New research from Employment Hero highlights growing concern among UK businesses as rising employment costs, legal complexity and compliance pressures make hiring feel harder and riskier. As SMEs weigh growth plans against new employment obligations, HR leaders must help businesses stay compliant without losing confidence in recruitment.
- Author: HRD Connect
- Date published: May 26, 2026
- Categories
Employment Hero, the AI-powered employment platform, has released new research suggesting many UK businesses are reaching a breaking point when it comes to hiring.
The findings paint a picture of employers caught between rising employment costs, growing legal complexity and increasing anxiety around compliance, all at a time when businesses are still being expected to grow.
Based on a YouGov survey of more than 1,000 UK business leaders conducted shortly after the latest employment law changes took effect in April, the data highlights a growing sense of strain across the SME market.
More than half of businesses now believe employing staff has become more complex over the past year, while employment costs for full-time workers have risen by almost 10%.
For HR leaders, the report reflects a growing challenge already being felt across organisations: balancing compliance, workforce growth and employee expectations in an increasingly difficult operating environment.
Complexity is becoming a barrier to growth
The research suggests hiring itself is becoming a source of anxiety for employers. Over half of firms surveyed said they are worried about unintentionally breaching new employment laws, while 78% reported that growing employment complexity has already affected their ability to grow over the last 12 months.
The concern is particularly acute among smaller businesses, where internal HR and legal resources are often more limited. Nearly one in five small businesses said new employment laws now significantly discourage them from hiring altogether. That hesitation matters beyond recruitment alone.
SMEs remain one of the UK economy’s largest sources of employment and growth. When hiring slows, the impact extends into productivity, workforce mobility and wider economic confidence.
Kevin Fitzgerald, UK Managing Director at Employment Hero, says many business owners increasingly feel hiring has become something to fear rather than a route to growth. “We hear from employers every day who want to do the right thing by their people as well as grow and contribute to the economy, but they need clearer support and better tools to keep pace with change,” he said.
HR teams are managing pressure from every direction
The findings arrive at a time when HR teams are already navigating significant transformation.
Employment law reforms, rising wage pressures, AI adoption, wellbeing expectations and skills shortages are all converging simultaneously. For many HR leaders, the challenge is no longer simply attracting talent, but managing increasing operational complexity while maintaining organisational stability.
According to the report, businesses rated hiring complexity at an average score of 6.2 out of 10 today, up from 4.7 just three years ago. For HR teams, compliance is becoming more resource-intensive, particularly as organisations prepare for evolving rules around statutory sick pay, paternity leave, unfair dismissal qualifying periods and zero-hours contracts.
Elissa Thursfield, Specialist Employment Lawyer and Managing Director of HRoes, says many SME employers are not just frustrated, but deeply concerned about long-term sustainability. “The concerns from business owners are very real,” she said. “We are also hearing genuine fear from some employers about how sustainable it is to continue operating.”
Rising costs are reshaping hiring decisions
While legal complexity is creating uncertainty, rising employment costs remain the biggest pressure point. Two thirds of businesses reported increased costs linked to new employment laws, while more than half said HR administration, payroll processing and recruitment costs had all increased over the last year.
Higher salaries remain the biggest driver of rising employment costs overall, particularly in sectors like retail, hospitality and leisure where minimum wage increases have had the strongest impact.
This combination of cost pressure and compliance anxiety risks creating a more cautious hiring environment, especially among smaller businesses already operating with tighter margins.
For HR leaders, the challenge is becoming increasingly strategic. Organisations still need to attract talent, retain employees and support growth, but they must now do so while navigating a more expensive and heavily scrutinised employment landscape.
Technology is becoming part of the HR survival strategy
The report also reinforces a wider trend emerging across the HR function: technology is increasingly being viewed not simply as an efficiency tool, but as a way to manage growing complexity.
Employment Hero argues that businesses need clearer systems and better support to keep pace with regulatory change.
That reflects a broader shift happening across HR. As employment processes become more complicated, organisations are relying more heavily on automation, integrated HR platforms and AI-powered systems to reduce administrative burden and minimise compliance risk.
But technology alone is unlikely to solve the issue. The organisations that navigate this successfully will be those that combine strong systems with clear communication, practical support and realistic workforce planning.
HR’s role is becoming more commercially critical
Employment law changes are no longer simply a compliance issue handled quietly in the background. They are directly influencing hiring strategy, workforce planning and business growth.
This places HR leaders much closer to core commercial decision-making. As complexity rises, HR’s ability to balance legal risk, employee experience and operational sustainability will become increasingly important to organisational success.
Because for many businesses, the challenge is no longer whether they want to grow. It is whether hiring still feels manageable enough to make growth possible.
