Are your staff costs going up?

Privately-owed businesses are experiencing a jump in wage costs, with almost half (47%) facing ‘significantly' more staff costs than a year ago.

According to research issued by financial adviser Grant Thornton, 51% of UK businesses in the private sector claim to be more focused on attracting and retaining staff than they were 12 months ago. This compared to just 2% who are less or focused.

Alysoun Stewart, head of entrepreneurial advisory at Grant Thornton, believes this is due to the strong labour market that has persisted while wider fears of a slowdown grip the economy.

"With the reports last month [March] of the highest number of people in employment since comparable records began in 1971, coupled with the international fluidity of employment today, companies are being forced to compete on wages despite the prediction of continuing economic uncertainty during the coming financial year," she said.

The impact of rising pressure on wages could also scupper the Bank of England's attempt to keep inflation under control, meaning it may be unable to deliver future interest rates cuts that are considered vital if the wider economy is to weather the storm that has developed from the global credit crunch.

Companies are being forced to compete on wages despite the prediction of continuing economic uncertainty during the coming financial year

The study also revealed that 36% of UK businesses had seen a rise in operating costs and a quarter also saw a fall in customer service standards. "In many cases it is cheaper, and considerably easier, to offer a salary rise to prevent staff turnover, rather than paying to rectify problems arising from recruitment and retention issues in the long-term," added Stewart.

The research also suggested, though, that those after increased pay rises may be disappointed. Two-thirds (65%) of businesses said employees understood the company's directions and values was a key strategy, compared with 47% who are currently looking to develop competitive reward schemes.

"While increasing awareness of values and goals certainly has merit, firms that want to compete effectively on both the national and international stage ignore the need for competitive wage rates at their peril," Stewart added.