The current economic climate continues to place significant pressure on UK businesses. Many employers are facing the combined impact of slower economic growth, reduced consumer confidence, increased borrowing costs, higher supplier prices and continuing pressure on wages. For many organisations, particularly those operating in labour-intensive sectors or with tight profit margins, these factors are prompting a renewed focus on cost control, operational efficiency and longer-term workforce planning.
Alongside wider economic uncertainty, the increase in employer National Insurance contributions has added a further cost burden. From April 2025, the employer National Insurance rate increased from 13.8% to 15%. This means that employers are paying National Insurance at a higher rate and from an earlier point in an employee’s earnings.
Rising operational costs and pressure on margins
For many employers, staffing is one of the largest areas of expenditure. When payroll costs rise at the same time as rent, utilities, insurance, raw materials, technology, professional fees and supply chain costs, businesses may find that their existing operating model is no longer sustainable. Some organisations may be able to absorb these increases through pricing, productivity improvements or investment in systems. Others may need to look more closely at how work is organised, how services are delivered and whether the current structure remains commercially viable.
This may involve reviewing management layers, reporting structures, the use of contractors, outsourcing arrangements or the allocation of work across teams. In some cases, businesses may decide to streamline processes, merge functions, reduce duplication or remove roles that are no longer required in the same way.
When cost reduction becomes a restructuring exercise
A business restructure does not automatically mean redundancies will follow. However, where a restructure results in a reduced requirement for employees to carry out work of a particular kind, or to carry out that work at a particular location, a redundancy situation may arise. This can include circumstances where work is reduced, roles are combined, duties are redistributed, technology replaces certain tasks, or the business decides to cease or reduce a particular activity.
Employers should be clear about the business rationale for any proposed change. This may include documenting the financial pressures being experienced, the operational challenges identified, the options considered and why the proposed structure is considered necessary. A clear business case will support meaningful consultation and help employees understand the reasons behind the proposed changes.
Managing the redundancy process fairly and lawfully
Where a business is considering restructuring or potential redundancies, it is important that the process is handled carefully. Employers should avoid presenting decisions as final before consultation has taken place. Consultation should be meaningful, allowing affected employees to understand the proposal, ask questions, challenge the rationale, suggest alternatives and be considered for suitable alternative roles where available.
Employers should also ensure that any selection process is fair, objective and capable of being evidenced. Selection criteria should be relevant to the needs of the business and applied consistently. Care should be taken to avoid criteria that could indirectly disadvantage employees because of protected characteristics, such as disability, pregnancy, maternity, age, sex, religion or belief, race, sexual orientation or gender reassignment.
Where 20 or more redundancies are proposed at one establishment within a 90-day period, collective consultation obligations may apply. Employers should also consider individual consultation, notice entitlements, statutory redundancy pay, contractual obligations, the right of appeal and whether suitable alternative employment is available.
In summary
The current economic environment is requiring businesses to think carefully about resilience, efficiency and the future shape of their workforce. Rising employment costs, increased operational overheads and developments in AI are all legitimate reasons for employers to review how work is carried out. However, where these reviews may lead to changes in roles, contractual arrangements or redundancies, employers must ensure that they follow a fair, transparent and legally compliant process.
Handled well, restructuring can help a business remain sustainable while supporting employees through change. Handled poorly, it can create legal risk, damage employee relations and undermine trust. The key is to plan carefully, communicate clearly and ensure that employees are treated fairly throughout the process.
Considering a restructure or potential redundancies?
Our team of HR Consultants can support your business through this complex process by providing practical advice, clear communications and tailored documentation.
To discuss your options and ensure any proposed changes are managed fairly and lawfully, please contact our team for advice.