Recent employment figures suggest that the number of people on UK payrolls is continuing to fall.
However, the important question for business owners is not what other employers are doing. It is whether your workforce remains the right size and structure for your business.
Staffing costs are often one of the largest expenses faced by growing businesses. Therefore, regularly reviewing these costs can help improve profitability, productivity and long-term planning.
At The MGroup, we regularly help businesses across Oxfordshire and beyond to understand the true cost of employment and make informed decisions about recruitment, retention and workforce planning.
Click Here to read more about the benefits of outsourcing your payroll.
Look Beyond the Monthly Payroll
Many business owners focus on monthly payroll costs. While this is important, it only tells part of the story.
The true cost of employing someone includes:
- Salaries and wages
- Employer’s National Insurance contributions
- Pension contributions
- Employee benefits
- Training and development costs
- Recruitment expenses
- Equipment and technology
Over the past few years, many businesses have experienced rising employment costs. As a result, reviewing staffing costs has become more important than ever.
Partner Insight
“Staffing decisions should be based on business performance and future objectives, not simply market headlines.” Says Jordan Lyne, Partner at The MGroup
Rather than looking at payroll in isolation, compare workforce costs with key business measures such as:
- Turnover
- Gross profit
- Productivity
- Customer service levels
- Capacity utilisation
For example, if staffing costs have increased by 10% but turnover has only increased by 3%, it is worth understanding the reasons behind the difference.
In some cases, this may reflect investment in future growth. In others, it could highlight inefficiencies that need attention.
You may also find our guide on https://www.themgroup.co.uk/ useful when assessing overall cost management strategies.
Should Every Vacancy Be Replaced?
When an employee leaves, replacing them is often viewed as the default option.
However, every vacancy presents an opportunity to review how the business operates.
Ask yourself:
- Does the role still need to exist in its current form?
- Can responsibilities be redistributed effectively?
- Could software or automation improve efficiency?
- Has technology reduced the workload associated with specific tasks?
Many businesses have significantly improved productivity by redesigning roles rather than automatically recruiting replacements.
That said, cost-saving should not become the sole driver of workforce decisions.
Delaying recruitment for too long can create additional pressure on existing employees. Meanwhile, excessive workloads can lead to reduced productivity, lower staff morale and increased employee turnover.
Finding the right balance is critical.
Model the Cost Before Making Recruitment Decisions
Whether you are hiring or restructuring, understanding the financial impact should be part of every decision.
Before recruiting an additional employee, calculate the full annual employment cost rather than focusing solely on salary.
Consider:
- Salary expectations
- National Insurance contributions
- Pension contributions
- Training costs
- Recruitment fees
- Equipment and office costs
Once you understand the total investment required, assess what contribution the new employee needs to make.
This could include:
- Increased sales revenue
- Additional operational capacity
- Improved customer service
- Enhanced business efficiency
Partner Insight
“Businesses that model recruitment scenarios before hiring are often better positioned to manage growth sustainably.” Says Jordan Lyne, Partner at The MGroup
Similarly, if you are considering reducing staffing levels, model the wider impact first.
A lower payroll may improve short-term profitability. However, it could limit your ability to deliver services, support customers or pursue future opportunities.
Use Your Financial Data to Guide Workforce Planning
Your accounting records already contain much of the information needed to undertake a meaningful staffing review.
Regularly comparing staffing costs against turnover and gross profit can help identify trends before they become significant problems.
Useful metrics include:
- Staffing costs as a percentage of turnover
- Gross profit per employee
- Revenue per employee
- Labour costs by department
- Staff utilisation rates
These insights often provide a clearer picture than looking solely at cash balances or monthly payroll figures.
For additional planning support, you may find our articles on:
- Summer Business Health Check
- Business Cash Reserves Under Pressure
- Ready for the New Digital Tax Rules
Useful external guidance can also be found through:
What Should You Do Now?
✅ Review total employment costs, not just salaries
✅ Compare staffing costs against turnover and gross profit
✅ Assess whether vacant positions require direct replacement
✅ Identify opportunities for automation and efficiency improvements
✅ Model recruitment and restructuring scenarios before making decisions
✅ Monitor workforce productivity using meaningful financial metrics
✅ Seek professional advice before making significant staffing changes
Key Takeaways
- Staffing costs should be reviewed regularly as part of financial planning.
- Payroll is only one element of the true cost of employment.
- Vacancies provide an opportunity to assess operational efficiency.
- Recruitment and workforce changes should always be supported by financial modelling.
How We Can Help
At The MGroup, we help businesses understand the financial implications of recruitment, workforce planning and operational growth.
Our team can analyse staffing costs, model different scenarios and provide practical commercial advice that supports informed decision-making and sustainable growth.