3 big HR challenges for SMEs in 2025

Amy Martin is the Managing Director at the award-winning family run outsourced HR Support Services business, Absolute Works. She is also attended the Help to Grow: Management Course at Birmingham City University.

In this article, Amy writes about the HR challenges SMEs may face in 2025:

2024 was a busy year for business owners, especially within the world of HR. The UK saw a general election, its first Labour government in 14 years, and the “biggest shake up of employment rights in a generation” according to Stevens & Bolton LLP.

With so many changes, employers understandably have questions about what might be on the horizon for 2025. The landscape will face its share of challenges and changes, including:

• A continuation of the cost-of-living crisis

• Autumn Budget fallout

• The beginning of reforms under the new Employment Rights Bill

 So how can business owners address these challenges head on?

According to research by People Management, one of the biggest concerns for employees throughout 2024 was the continued rise in the cost-of-living. And unfortunately, this isn’t going away.

75% of HR directors saw a drop in productivity, resulting from employees being concerned, burnt out, or preoccupied with the stresses associated with the cost of living.

As the financial strain continues to affect households, staff’s morale and wellbeing will be affected.

Try to consider the financial strains employees are experiencing. If wage increases are unaffordable, leaders need to ask staff what they think would help them the most. There is no point in introducing initiatives which will not be utilised or have the desired effect.

Benefits and initiatives that can be offered include:

• Provision of an Employee Assistance Programme to give staff someone to talk to when they need it most.

• Free food and drink, breakfast and or lunch. This doesn’t have to be every day; a day a week may make all the difference.

• Travel and parking discounts.

• Free upskilling opportunities.

These measures can help boost retention and engagement, which is cheaper than constantly rehiring and training.

In April 2025, businesses will face new economic pressures because of national minimum wage increases, changes to national insurance contributions, and the knock-on effect of increased pension contributions. This is compounded by the cost-of-living crisis which is also directly affecting businesses.

Some business leaders are making very difficult decisions in order to survive in the current climate. To manage costs and avoid restructuring, business leaders may want to consider optimising their business processes using cost-reducing systems or software. This will help offset the additional cost margins.

However, where redundancies are absolutely necessary, as has sadly been the case with many of our clients, business leaders need to make sure that their policies are robust, fair, compliant, and followed correctly to avoid a claim of unfair dismissal or discrimination.

Leaders also need to be mindful of the impact that these actions have on the remaining workforce. Burnout and employee disengagement for those remaining are often overlooked, especially during unsettled periods. This can pose real problems going forward. Proactively managing any absences and having regular and open discussions with staff will be key.

The new Labour government is planning significant legislative change for business owners. The Employment Rights Bill and upcoming Equality (Race and Disability) Bill will bring huge reforms to workers’ rights, including the following proposals:

• Day one rights to unfair dismissal.

• Day one right to sick pay.

• A mandatory probation period.

• Extension to the time limits for employees to bring a claim in the employment tribunal.

• Pay gap reporting.

• Equality action plans.

And that’s just the tip of the iceberg.

Though many elements of the “Plan to Make Work Pay” won’t take effect until 2026, it’s crucial for businesses to start planning ahead.

Navigating all these changes and challenges can be daunting. This is when expert advice is invaluable, whether it’s from the mentors and facilitators in the Help to Grow: Management Course or from a specific HR-focused company like ourselves.

Find out how the Help to Grow: Management Course can help your 2025 business challenges here.