SMALL businesses say they are “not hiring” as new figures show payrolled employees fell by over 100,000 in a year.
Payrolled employees in the UK fell by 101,000 (0.3%) between July 2025 and July 2026, and decreased by 19,000 (0.1%) between June and July 2026, Office for National Statistics data showed.
When looking at May to July 2026, the number of payrolled employees fell by 84,000 (0.3%) over the year and by 39,000 (0.1%) over the quarter.
Payrolled employees for August 2026 decreased by 145,000 (0.5%) on the year, and decreased by 26,000 (0.1%) between July and August 2026 to 30.2 million.
Vacancies decreased on the quarter, with early estimates for June to August 2026 suggesting a decrease of 8,000 (1.1%) vacancies to 702,000, compared with March to May 2026, the lowest level since February to April 2021.
Debbie Porter, Managing Director at Bakewell-based Destination Digital Marketing, said hiring employees for her small business is risky right now.
She added: “We’re not hiring because the cost and risk of taking on new people makes it a real threat. De-risking by engaging freelance staff, even with the higher day rate that comes with them, is now the way forward.
“You only have to log in to LinkedIn to see people announcing their own redundancy every day, which means we also have a wide pool of highly qualified people from whom to pick. If each successive government’s aim was to have everyone working in the gig economy, the plan is working out perfectly.”
Shift
Tony Sanchez, Founder at Bridging Loan Directory, is also choosing not to take anyone on.
He added: “I’m not hiring at the moment. For a small business, the cost of employing someone has become a significant commitment once salary, National Insurance, pension contributions and the other costs of employment are taken into account. Cost isn’t the only barrier, though.
“Finding the right person is difficult. In a small business, every hire matters, and I would rather wait than employ somebody simply because I need another pair of hands. The fall in payrolled employment doesn’t particularly surprise me. From my perspective, it isn’t necessarily that businesses don’t want to grow or create jobs.
“I think many smaller employers are simply being more cautious about taking on another permanent cost when they are uncertain whether they can find the right person and justify the overall expense. If the Government wants small businesses to hire more, reducing the cost and risk attached to taking on employees would make a meaningful difference.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said he has frozen hiring for his small business.
He added: “I’m not hiring and here’s why. Employer on-costs are up: National Insurance contributions and the lower secondary thresholds inflate the non-wage cost of every domestic hire, turning headcount into a recurring risk. Rising wage floors squeeze margins hardest for small businesses without scale to absorb them.
“Employment rights legislation adds legal friction, regulatory risk and structural costs that variable-cost contracting simply doesn’t carry. The ONS data backs this up. This is a structural shift, not noise. Payrolled employment down 145,000 year-on-year, 26,000 in August alone: that’s a deliberate freeze on domestic expansion, not seasonal drift.
“Push tax and regulatory burdens past a critical threshold and capital moves toward higher-efficiency, lower-risk alternatives. Global remote talent plus AI automation now hand small businesses flexibility that headcount actively penalises. The ONS figures are the macro readout: agility and margin preservation over added domestic liability.”
Kelly Smallcombe, Fractional Chief People Officer at Meliorem HR Consultancy, said small businesses are worried about hiring.
She added: “The real barrier isn’t confidence, it’s clarity. Employment law is shifting under employers’ feet and the changes still coming down the line mean nobody can be certain what a hire looks like six months from now. That uncertainty freezes headcount faster than any bad forecast. AI changes the calculation.
“It lets employers take a calculated risk on growth without betting the business on a permanent hire they can’t yet justify. The data doesn’t show caution. It shows employers who’ve stopped trusting the ground under them. That raises an uncomfortable question.
“If law designed to protect employees ends up freezing the jobs they’d have been protected in, is it really doing a good job? That’s the real failure of this approach. The law keeps tightening on small businesses trying to do the right thing, while the employers who actually end up at tribunal again and again barely notice the difference.”
Clarity
Mike Staton, Director at Mansfield-based Staton Mortgages, said the government is offering no incentives to small businesses to hire.
He added: “I am currently hiring, but I have left this to the very last minute whereas I would probably have filled the position already under the previous government. There is an uncertainty and fear about employing new staff due to the current government’s legislation and employment cost hikes.
“I am not surprised about the figures, the Labour Party have caused political Armageddon and employers are more concerned about building a fallout shelter to protect their businesses than to put it at risk by growing it.
“Unless the current government can accept that we live in a society where lower taxes and business growth stimulate the economy, we will remain in this dystopian era of an economic cold winter until a forward-thinking government can be voted in. Businesses don’t create jobs because politicians tell them to. They create jobs when they have confidence to invest and grow.”
