The Role of HR in SMEs

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by Rebecca Lister | 5th Jun 2025

How outsourced HR tackles recruitment and financial challenges

Article Summary

SMEs are the backbone of the UK economy but face increasing challenges in 2025 – from rising labour costs to talent shortages. This article explores the vital role of HR in SMEs and offers practical strategies like outsourcing HR, using apprenticeships, and improving recruitment and retention. Discover how the right HR support can help your business thrive despite economic pressure.

SMEs Drive the UK Economy—But HR Challenges Are Growing

SMEs (Small and Medium Enterprises), defined as any organisation with fewer than 250 employees and a turnover under £44 million, make up a staggering 99.9% of all businesses in Great Britain.

More locally within Kent, Micro-Businesses and SMEs dominate the business landscape and each make Kent a thriving business landscape. These businesses are crucial to the local economy and are full of potential.

However, SMEs are facing their own unique and growing challenges. Read on as we break down the role of HR in SMEs and provide you with expert guidance on how to combat them! Looking for cost-effective HR support? Explore our outsourced HR SME services today.

Why the Role of HR in SMEs is Essential to Success in 2025

In today’s economic landscape, SMEs must balance their business goals with the realities of rising costs, recruitment challenges, and a competitive talent market. The importance of HR in achieving sustainable growth has never been clearer.

Whether it’s ensuring compliance with relevant employment laws, improving employee retention, or implementing effective HR practices that enhance productivity and employee satisfaction, having a strong HR foundation is key.

For many SMEs, the solution lies in outsourcing HR or working with a dedicated HR professional who understands the unique HR needs of smaller businesses. From managing HR policies and onboarding to supporting employee engagement and career development opportunities, the right HR strategies provide tangible, long-term value.

Rising Costs and Recruitment Struggles

While SMEs continue to play a crucial part within our economy:

• • Workforce expansion by SMEs fell from 24% in 2024 to 20% in early 2025
  • 17% of SMEs across Great Britain have reduced staff
  • Key contributing factors:
    • Increases to National Insurance
    • Changes in employment law
    • Broader market uncertainty

Numerous factors having contributed to this include recent changes to national insurance, developing employment law and wider market uncertainties. Financial issues coupled with a skills shortage and recruitment difficulties, have left some SMEs in a vicarious position.

Don’t let rising costs and HR challenges hold your SME back. Learn how strategic HR planning can boost compliance, retention, and productivity. Book a quotation today.

Rise in National Insurance Contributions

From 6th April 2025, National Insurance Contributions (NICs) have risen, meaning employers are paying a higher rate on a lower threshold of employee earnings.

Specifically, employer NIC’s rate has increased from 13.8% to 15%, with the threshold at which employers start paying NIC decreasing from £9,100 to £5,000 per year.

From April 6, 2025:

• Employer NIC rate increased: 13.8% → 15%
• Employer NIC threshold reduced: £9,100 → £5,000

Relief measure:

• Employers can now claim back up to £10,500, up from £5,000
• Result: ~865,000 employers won’t pay NIC on staff

This will put a greater financial strain upon businesses finances. Having a strategic HR plan in place can be one way to ensure you are safeguarding your SMEs finances, by not having to pay out on tribunal claims or costly disputes.

However, steps have been taken to ensure SMEs are protected. The amount which employers can claim back from National Insurance bills has risen from £5,000 to £10,500, meaning SMEs will be shielded from the full impact of some of the increases.

Around 865,000 employers will not have to pay National Insurance on their employees next year and around 1 million will see no change to what they have to pay.

Recruitment

In terms of recruitment, it has been reported that those within the Construction and Engineering sectors continue to find it hardest to find staff, with 83% reporting recruitment and workforce management issues. This reflects a wider skills shortage and is something that is challenging SMEs.

Recruitment for SMEs in 2025 requires a clear strategy and approach to ensure your company is cost-effective and efficient. Spiralling employment costs and a limited talent pool can affect the recruitment process for SMEs but taking a creative and strategic approach can combat this.

Hire for potential not just experience

When it comes to a hiring strategy often it can be easy to overlook those with little experience. However, in doing so, you are limiting an already diminished talent pool. Giving an individual a chance who shows a keen interest in the sector and a willingness to learn and grow can result in your SME creating a highly skilled workforce with high retention and morale.

Apprenticeships

Employing apprentices offers cost-efficient training and development and could help address both the skills shortage and recruitment difficulties. Funded training programmes are available to all businesses and the costs of training can be covered partly or in full by the Apprenticeship Levy.

Apprenticeships can not only help attract new talent into the workforce but can also be used to train and upskill current staff. By investing in apprentices, you can address both your current and future business needs.

Career Development

Offering opportunities for development and growth within your organisation can be appealing for individuals looking to progress in their career. In doing so, you allow individuals to grow as your company does!

A well-planned career development strategy is a vital part of the role of HR in SMEs, helping to attract, retain, and upskill top talent—especially in a competitive hiring landscape.

Ready to future-proof your team? Discover how our HR consultants can help you implement tailored career development plans that align with your business goals. Book a quotation today.

Company Culture

The very nature of SMEs means they are in the perfect position to offer a more personalised and flexible work environment that can appeal to candidates when compared to larger corporations. Creating a company culture with strong company values and goals in place, allows individuals to align themselves with the values that appeal to them.

Additionally, SMEs should think beyond salary and look to offer alternative benefits:

• • Personalised work environments
  • Strong, values-led culture
  • Alternative benefits to boost retention:
    • Flexible working
    • Wellbeing programs
    • Training opportunities

For SMEs looking to recruit their first employee, there is nothing to fear. Bringing on an employee can have many benefits – find out Why now is the Best Time to Recruit!

When looking to hire, it is important that you keep in mind the legal requirements, to ensure you and your SME are staying compliant.

How an expert HR consultant can help your SME

Working with smaller teams, often SMEs cannot justify the need or expense of having a full-time internal HR team/colleague, however, may at times require HR support. External HR consultants can help support you and your small business.

Strong human resource management supports not just legal compliance, but also employee development, improved employee performance, and greater job satisfaction. Investing in expert HR professionals can enhance employee relations, create a more positive workplace culture, and align your people strategy with your wider business goals.

Our HR consulting services for employers offer SMEs a wide range of services and support. From providing employment contracts and handbooks and policies, to navigating difficult investigations, HR consultants are best placed to help your small and medium-sized enterprise whatever your needs may be.

Having a flexible approach helps keep costs relative to business size and ensures that your company is compliant with employment law and running smoothly.

Please feel free to explore our website to learn more about the role of HR in SMEs and the HR services we provide, or to find out how we can help, Get in Touch!

Author: Rebecca Lister
Rebecca supports the Eclipse HR team and our clients across a range of tasks. Alongside her role, she is studying for an Integrated Masters in Advanced Legal Practice (MLaw) at the University of Kent. Her academic focus, particularly in employment law, complements her practical experience and deepens her understanding of HR in action.

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