If you’re planning to recruit this year, you may be interested to learn that many UK businesses are making a different choice.
Rather than committing to permanent employees, increasing numbers of employers are turning to temporary workers, contractors, consultants and outsourced specialists.
This isn’t just anecdotal evidence. Recent labour market data suggests a significant shift in hiring behaviour across the UK.
According to the latest KPMG and Recruitment & Employment Confederation (REC) Report on Jobs, permanent hiring fell in May 2026 at the fastest rate for ten months. In fact, permanent placements have now fallen for 44 consecutive months, which is the longest period of decline since the survey began in 1997. At the same time, temporary worker demand increased at the fastest rate for more than three years.
So, what is driving this trend, and what can business owners learn from it?
Businesses are prioritising flexibility
The message coming from employers is remarkably consistent. Businesses are finding it increasingly difficult to predict what the next 12 to 24 months will look like. Economic growth remains subdued. Consumer confidence remains mixed. Many sectors continue to experience cost pressures. Against that backdrop, business owners are becoming more cautious about committing to long-term fixed costs.
When uncertainty increases, flexibility becomes more valuable.
A permanent employee creates a long-term financial commitment. A contractor, consultant or outsourced provider can often be engaged for a specific project, a defined period or a particular area of expertise and, for many businesses, that flexibility has become extremely attractive.
The true cost of employment has increased
When considering a new employee, most business owners naturally focus on salary. However, salary is only part of the picture. Employers must also fund:
- Employer’s National Insurance
- Workplace pension contributions
- Holiday pay
- Sick pay
- Recruitment costs
- Training costs
- Management time
- Equipment and software
- Potential redundancy costs
The result is that a £40,000 salary can often cost substantially more than £40,000 once all associated employment costs are considered.
That doesn’t mean employing staff is a bad decision. Far from it. But it does mean that every recruitment decision deserves careful analysis.
The labour market is showing signs of cooling
Recent official figures suggest employers across the UK are becoming more cautious.
The Office for National Statistics reported that the number of payrolled employees fell by approximately 104,000 over the year to March 2026. Early estimates indicate an even larger reduction of around 210,000 employees over the year to April 2026.
At the same time, vacancies have fallen to their lowest level in around five years, and unemployment has risen to 5%.
These figures don’t necessarily point to a crisis. The UK labour market remains relatively resilient. However, they do suggest that many employers are taking a more measured approach to hiring than they were a few years ago.
Why SMEs are increasingly using specialists
One of the most interesting developments is the rise of the “fractional” workforce.
Many growing businesses no longer feel they need to employ every specialist on a full-time basis. Instead, they are buying expertise when they need it.
Examples include:
- Fractional finance directors (for example, eba offers this service)
- Marketing consultants
- HR specialists
- IT security experts
- AI consultants
- Operations specialists
- Project managers
For a growing business, this can provide access to senior expertise at a fraction of the cost of a full-time hire.
A business may only need a Finance Director for one day per month. It may only need an HR specialist when dealing with recruitment, disciplinary matters or policy updates. The ability to access specialist knowledge without carrying a full-time salary has become a powerful tool for many SMEs.
But permanent employees still matter
It would be a mistake to conclude that permanent employees are becoming less important. In reality, the strongest businesses typically combine a stable core team with external specialists. Permanent employees often provide:
- Customer continuity
- Long-term knowledge
- Cultural alignment
- Leadership development
- Operational stability
Your best employees understand your customers, your systems and your values in a way that an external contractor never fully can. For most SMEs, the objective should not be to replace employees with contractors. Instead, it should be to build the right balance between the two.
Before you recruit, ask these questions
Whether you’re considering an employee, contractor or outsourced provider, it can be useful to ask the following questions:
- Is this work ongoing or project-based?
- Will I still need this role in two years’ time?
- What is the total employment cost, not just the salary?
- Could specialist expertise achieve a better result? Contractors and outsourced providers offer a way of tapping into specific expertise, as and when needed.
- Is there a flexible solution available?
- How would this decision affect cash flow if trading conditions changed? Salaries are a fixed cost, whereas contractors and outsourced providers offer a variable cost solution – a tap that can be turned on and off as required.
These questions often help clarify whether a permanent hire is genuinely the best solution.
What this means for business owners
The current labour market trend isn’t really about contractors versus employees. It’s about flexibility.
Businesses are becoming more disciplined about fixed costs and more strategic about how they access skills and expertise.
The most successful companies are not necessarily those with the largest teams. Increasingly, they are the businesses that can access the right expertise at the right time whilst maintaining a strong core team.
That requires careful planning, robust forecasting and a clear understanding of the financial impact of every hiring decision.
How eba can help
People costs are often the largest expense within a growing business.
Before recruiting, it’s important to understand the full financial implications of the decision and how it fits within your wider business strategy.
At eba, we regularly help business owners evaluate recruitment decisions, forecast staffing costs and assess whether permanent employees, outsourced providers or specialist consultants offer the best solution.
So, if you’re planning to grow your team this year, we’d be happy to help you assess the options and ensure your recruitment decisions support your long-term profitability and growth.
