Small and medium-sized enterprises (SMEs) across the United Kingdom are demonstrating sustained resilience by continuing to expand their workforces, yet a notable divergence is becoming increasingly apparent within the labour market. Employers are exhibiting a clear preference for full-time positions, leading to a decline in part-time opportunities and creating a more polarised employment landscape. This strategic shift, driven by a confluence of economic pressures and legislative changes, carries significant implications for various demographic groups, particularly older workers and women.
A Shifting Landscape in UK Employment
New data from Employment Hero, a prominent hiring and payroll firm, reveals that employment within UK small and medium-sized enterprises saw a robust 5.3% year-on-year growth in March, marking an improvement from the 4.9% recorded in February. This consistent upward trend underscores the vital role SMEs play as engines of job creation in the national economy, contributing approximately half of all private sector employment and generating over £2 trillion in annual turnover. However, a deeper dive into the monthly figures exposes a nuanced and potentially concerning trend: full-time hiring increased by 1.1% in March, while part-time roles simultaneously declined by 0.5%. This marks the third consecutive monthly drop in part-time employment, signalling a fundamental restructuring of workforce composition.
The long-term perspective further solidifies this trend, with full-time roles expanding by an impressive 14.6% over the past year. In stark contrast, part-time positions saw a comparatively modest increase of 3.3% during the same period. This significant disparity indicates that while SMEs are actively recruiting, their hiring strategies are becoming increasingly selective, prioritising long-term workforce stability and a more consistent operational capacity. This strategic pivot suggests businesses are adapting to a complex operating environment by favouring established, full-time commitments over more flexible, part-time arrangements.
The Underlying Economic Pressures
The observed shift in hiring strategies by SMEs is not occurring in a vacuum; it is deeply intertwined with a challenging and evolving economic backdrop. Several factors are influencing businesses’ decisions to favour full-time roles, reflecting a calculated approach to managing costs, talent acquisition, and regulatory compliance.
Navigating a Complex Operating Environment: UK businesses, especially SMEs, have been grappling with a prolonged period of economic instability. High inflation, which peaked at over 11% in late 2022 and has only gradually receded, has significantly increased operating costs, from energy bills and raw materials to rental agreements. The pervasive cost of living crisis has also put upward pressure on wages, as employees seek to maintain their purchasing power. In this environment, businesses are under intense pressure to maximise efficiency and ensure every hiring decision contributes directly to productivity and long-term viability. Opting for full-time staff can be perceived as a way to build a more dedicated, invested, and productive workforce, potentially reducing turnover and associated recruitment costs.
Post-Brexit Labour Dynamics and Talent Competition: The UK labour market has undergone substantial changes since Brexit, notably a reduction in the availability of workers from the European Union. This has contributed to persistent skill shortages in various sectors, intensifying competition for talent. Employers are finding it necessary to offer more attractive packages, including stable full-time employment and competitive wages, to secure and retain skilled staff. For SMEs, which often have fewer resources than larger corporations, attracting and retaining talent is a critical challenge. Investing in full-time employees, with the implicit promise of career progression and benefits, can be a more effective strategy in a tight labour market. The UK’s unemployment rate has remained historically low, hovering around 4% in recent months, further exacerbating the competition for available workers.
The Role of Legislative Frameworks: A key factor cited by analysts, including Kevin Fitzgerald of Employment Hero, is the impact of recent legislative changes. The Employment Rights Act 1996, specifically amendments related to flexible working, came into force in April 2024. These changes grant employees the right to request flexible working from the first day of their employment, removing the previous 26-week qualifying period. Furthermore, employers are now required to consult with an employee before rejecting a flexible working request and must provide a decision within two months, down from three.
While these reforms are intended to empower employees and promote work-life balance, some employers may view them as adding administrative burden and potential complexities to workforce management. The increased ease with which employees can request changes to their working patterns, including a switch to part-time hours, might lead some businesses to strategically favour full-time hiring from the outset. This pre-emptive approach could be seen as a way to maintain greater control over staffing levels and ensure operational consistency, particularly for SMEs with limited HR capacity to manage frequent flexible working requests. The perception of increased regulatory compliance surrounding part-time and flexible arrangements could, paradoxically, be driving businesses towards the perceived simplicity and stability of full-time roles.
Disproportionate Impact on Vulnerable Groups
The implications of this shift towards full-time employment are not uniformly distributed across the workforce. Employment Hero’s research highlights that certain demographic groups are disproportionately bearing the brunt of the decline in part-time opportunities, raising concerns about social equity and economic inclusion.
The ‘Grey Exodus’ Concern: While part-time work is often stereotypically associated with younger employees, the data reveals a stark reality: it is disproportionately held by older workers. The March report indicates a sharp decline in part-time employment among older employees, with participation among baby boomers (born 1946-1964) dropping by a significant 6.2% month-on-month. This compares with declines of 2.7% among Generation X (1965-1980) and 1.3% for millennials (1981-1996). In contrast, Generation Z (1997-2012) actually saw a 5% increase in part-time roles, suggesting younger individuals may be taking up part-time work for entry-level experience, while studying, or within the burgeoning gig economy.
The decline in part-time opportunities for older workers is particularly concerning. Many older individuals choose part-time work as a bridge to retirement, to supplement pensions, or to manage health conditions or caregiving responsibilities. Being pushed out of part-time roles can lead to involuntary early retirement, financial strain, and a loss of valuable experience and skills from the labour market. This phenomenon, sometimes referred to as a "grey exodus," has broader societal implications, potentially increasing pressure on social welfare systems and reducing the UK’s overall productive capacity at a time when an aging population requires greater labour force participation.
Gender Disparities and Caregiving Responsibilities: The research also underscores pronounced gender disparities, particularly among older workers. Year-on-year data shows that part-time employment among boomer-aged women had fallen by 4.3%, while it had edged up slightly by 0.4% for men in the same age group. This trend is alarming, as women have historically constituted a larger proportion of part-time workers, often due to their disproportionate share of unpaid caregiving responsibilities for children, elderly relatives, or partners.
The contraction of part-time roles could therefore disproportionately impact women’s economic independence, career progression, and overall participation in the workforce. It risks exacerbating existing gender pay gaps and limiting opportunities for women to balance professional aspirations with family commitments. The ability to work part-time has been a crucial enabler for many women to remain engaged in their careers, and its reduction could lead to a rollback of progress made towards gender equality in employment.
Wage Growth Amidst Economic Headwinds
Beyond the shifting composition of the workforce, wages remain a critical pressure point for UK businesses. The Employment Hero report indicates that annual wage growth held steady at a robust 8.8% in March. This figure reflects the ongoing competition for talent and employers’ continued efforts to attract and retain staff in a tight labour market. Businesses are acutely aware that offering competitive remuneration is essential to secure the skilled workforce needed for stability and growth.
However, this impressive annual wage growth is occurring against a backdrop of persistently high, albeit moderating, inflation and escalating operating costs for businesses. While annual inflation has fallen from its peak, the cost of goods and services remains significantly higher than pre-pandemic levels. This raises critical questions about the sustainability of such rapid wage increases. Businesses are facing a delicate balancing act: offering higher pay to attract talent while simultaneously managing increased expenditures on energy, materials, and other overheads.
On a monthly basis, there was a slight dip in wages, falling by 1.1% in March. This monthly fluctuation could signal a slight easing of immediate wage pressures or a recalibration by some employers. Geographically, the north of England experienced the steepest monthly decline at 2.6%, suggesting regional variations in economic conditions and labour market dynamics. Such regional disparities could indicate differing levels of demand, industry concentrations, or local cost pressures impacting wage setting. The Bank of England has closely monitored wage growth as a key indicator of inflationary pressures, and the sustainability of high wage growth without corresponding increases in productivity remains a central concern for economic stability.
Expert Perspectives and Future Implications
The intricate dynamics observed in the UK labour market underscore a period of significant transition and strategic adaptation for SMEs. The expert commentary further illuminates the underlying motivations and potential long-term consequences of these trends.
Industry Commentary: Kevin Fitzgerald, UK managing director at Employment Hero, provides a crucial perspective on these developments. He notes that while the headline figure of employment growth appears positive, "the reality for small businesses is more complex. Beneath the surface, the labour market is quietly restructuring, with part-time and full-time roles moving in different directions. This is no coincidence. With the Employment Rights Act now in force, employers are making calculated choices about workforce composition and prioritising stability." Fitzgerald’s statement highlights that the shift is not merely an organic evolution but a deliberate, strategic response by employers to a new regulatory and economic landscape. He further adds, "The resilience of SMEs is clear, but it’s coming at a cost. Rather than scaling hiring, many are becoming more selective – a shift that could reshape who gets access to work in the months ahead." This selectivity could lead to a narrowing of pathways into employment for those who traditionally relied on part-time roles, creating a more exclusive labour market.
Broader Societal and Economic Impact: The implications of this growing divide extend far beyond individual businesses. A sustained reduction in part-time opportunities could lead to a less flexible labour market overall, potentially hindering the ability of individuals to balance work with other life commitments. For older workers, it could accelerate involuntary retirement, leading to a loss of experienced professionals and placing greater strain on public services and pension funds. For women, it risks undermining decades of progress towards gender equality in the workplace, particularly for those with significant caregiving responsibilities. Economically, while a focus on full-time roles might enhance immediate productivity and stability for some businesses, a less flexible workforce could also reduce the overall agility of the economy to adapt to future shocks and changing demands. It could also exacerbate underemployment if individuals seeking full-time roles cannot find them and are unwilling or unable to take the fewer available part-time roles.
Potential Policy Responses: Addressing this emerging labour market polarisation will likely require a multi-faceted approach. Policymakers might need to review the unintended consequences of legislative changes, such as the flexible working reforms, to ensure they genuinely promote inclusivity rather than inadvertently creating barriers. Support mechanisms for older workers, such as retraining programmes, career guidance, and incentives for employers to retain experienced staff in flexible capacities, could become increasingly vital. Similarly, enhancing childcare provision and support for other caregiving responsibilities could help women maintain full-time employment if part-time options diminish. Furthermore, fostering a culture of genuine flexible working, beyond statutory requirements, could encourage employers to see the value in diverse working patterns. This would involve promoting best practices in managing hybrid and flexible teams, demonstrating the benefits of retaining experienced staff in tailored roles, and potentially offering financial incentives or support for SMEs to implement robust flexible working frameworks.
In conclusion, the UK’s small business sector remains a crucial engine of employment growth, demonstrating commendable resilience in a challenging economic climate. However, the data reveals a profound restructuring of the labour market, with a decisive pivot towards full-time employment at the expense of part-time roles. This strategic shift, influenced by economic pressures and legislative changes, carries significant and disproportionate consequences for older workers and women, raising important questions about equity, economic inclusion, and the future shape of work in the United Kingdom. A nuanced understanding and proactive policy responses will be essential to navigate these evolving dynamics and ensure a truly inclusive and adaptable labour market for all.
