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SMEs that adopt strategic approaches to recruitment, focus on cultural fit, and prioritise employee retention can turn these challenges into competitive advantages. This comprehensive guide provides proven strategies to attract, select and retain top talent in today's challenging recruitment market.
Current state of the UK recruitment market
The recruitment landscape has dramatically shifted since the pandemic. Following the economic turmoil, job vacancies reached a peak of over 1.3 million in 2022. While the total number of job vacancies in the UK is declining, recruitment remains one of the biggest challenges facing HR teams.
For SMEs, the picture is even more challenging. Staff recruitment and skills is a barrier for 69% of all SMEs and 76% of high-growth SMEs. This represents a significant increase from previous studies, showing the severity of recruitment challenges has intensified.
Tech skills are increasingly in demand, yet a 2023 survey by Amazon Web Services and Gallup found that more than two thirds (68%) of businesses find it challenging to hire the digital workers they need.
The Spring CIPD Labour Market Outlook revealed concerning trends for 2025. The net employment balance (the difference between employers expecting to increase versus decrease staff levels) fell to +8, its lowest level on record outside 2020, with one in four employers planning redundancies in the next quarter. Employer confidence in the private sector is at a record low with a net employment balance of +11.
Recruitment challenges facing SMEs
The skills gap crisis
The skills shortage has reached critical levels across multiple sectors. In financial services, 73% of jobs are now classified as highly-skilled (managerial and professional roles), up from 52% in 2004.
This dramatic shift reflects broader economic changes where traditional low- and medium-skilled jobs have declined as businesses moved away from branch-based models to digital self-service platforms.
The UK Government's 2024 Employer Skills Survey reveals 27% of vacancies were skills-shortage vacancies, down from 36% in 2022.
Financial Services
In 2024, financial services firms had more than 5 unfilled vacancies for every 100 jobs according to ONS data - the highest since records began. The sector faces particular challenges with:
· High demand for digital and cybersecurity skills
· Competition for AI and data analytics expertise
· An ageing workforce and the eventual loss of key skills
· Need for regulatory knowledge alongside technical skills
Technology and IT
The technology and IT sector faces similar issues. With skills in AI, data security and compliance in demand, competition for talent is high. The need for both technical and soft skills and continuous learning are key considerations.
Healthcare and social care
A sector hit hard by restrictions on immigration, 55% of employers in care, social work and other healthcare activities have hard-to-fill vacancies (CIPD Spring 2025). The emotional demands of the work, competition from better-paid sectors, regulatory requirements and lack of qualified applicants are key challenges.
Other hard-hit sectors include construction, engineering and manufacturing industries.
Post-Brexit and the impact of immigration
Brexit continues to influence recruitment challenges. The UK Government's decision to implement new measures to cut legal immigration will likely exacerbate labour shortages, especially in low-paid professions such as care and hospitality.
The CIPD's Spring 2025 Labour Market Outlook confirms this trend: new immigration rules introduced in July are having an impact, with the net employment balance in social care falling from +23 to −2.
The soft skills revolution
Perhaps surprisingly, employers are increasingly prioritising soft skills over traditional qualifications. Recent analysis shows that a requirement for "previous experience" in banking, professional and financial services job listings fell by 22% in January 2024, while demand for communication skills, adaptability, and problem-solving abilities has increased.
Companies are increasingly seeking employees with skills in emerging technologies such as AI tools like ChatGPT. The role of AI Engineer came out top of LinkedIn’s list of Jobs on the Rise in 2025.
Feeling overwhelmed by recruitment and retention? The P3 People Management HR experts are on hand to answer all your questions.
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Strategic recruitment approaches for SMEs
To navigate a challenging recruitment landscape SMEs must adopt strategic, targeted approaches to set them apart from larger competitors and maximise their unique advantages.
1. Research your market
Rather than using a scatter-gun approach, take time to profile your ideal candidate and advertise where they're most likely to see that job opportunity. Consider:
· Using specialist recruitment platforms designed for your industry
· Direct partnerships with universities and colleges
· Targeting professional networking events
· Advertising on social media platforms where your target demographic is most active.
Go direct to the source of emerging talent and build relationships with educational institutions. You might be able to headhunt promising graduates and apprentices before they reach the open market.
2. Embrace skills-based recruitment
Skills-based recruitment can reduce time and cost, decrease the chances of recruiting the wrong person, and increase staff retention. In fact, 85% of employers are using skills-based hiring as part of their process. When you look beyond qualifications and experience to skills and aptitude, you gain a broader, more balanced view of applicants.
How to implement skills-based recruitment:
· Add online skills testing tools to your assessment process
· Include individual and group exercises in interviews
· Create practical challenges relevant to the role
· Focus on potential, rather than perfect qualifications.
A candidate might not find the perfect fit at first, but they can develop missing skills through training, coaching and mentoring. Prepare learning and development programmes to upskill young talent – this approach both widens your talent pool and attracts a different, eager-to-learn, calibre of candidate.
3. Strengthen collaboration
Successful recruitment requires effective collaboration between HR and hiring managers. Both parties must work together to:
· Match business needs to role specifications
· Ensure fair and balanced assessment processes
· Align on candidate selection criteria
· Create consistent interview experiences.
4. Flexible working as a competitive advantage
Flexible working has become a non-negotiable for many candidates. According to the CIPD, 18% of UK employers have seen an increase in flexible working requests since the introduction of the day one right to request. 80% of employees say that working flexibly has had a positive impact on their quality of life.
SMEs must be prepared to respond to flexible working requests and offer flexible working arrangements to attract and retain high quality talent.
The role of values and culture in recruitment
The business case for choosing candidates with the right cultural fit is strong. 61% of employees have resigned from a job because of toxic workplace culture, while strong company culture increases employee engagement and makes people less likely to actively look for another job.
Defining your organisational culture
Before starting any recruitment, you need to identify your company's values and cultural beliefs. This will guide hiring decisions and help attract candidates who will thrive in your workplace. To help you do this:
· Consider how you want people to perceive your company
· Understand your organisation's purpose and what it stands for
· Define your core values
· Identify employee behaviours needed to grow the business
· Clarify your business vision for the future.
Assessing cultural fit during interview
The interview process is your opportunity to identify candidates that fit with your company culture. You can do this via a combination of questions and assessment.
Practical Assessment
· Workplace tours: Take candidates through your workspace to meet potential colleagues
· Informal interactions: Invite them for coffee or lunch with team members
· Diverse selection panels: Include a mix of team members in the screening process
· Observe natural interactions: Note how candidates engage with different people
Cultural alignment questions
· What motivates you most in your work environment?
· Describe your preferred working style and team dynamics.
· What do you value most about collaborative working?
· Share an example of when you've supported a struggling colleague.
· Describe a time you created a positive experience for a customer or client.
Balancing cultural fit with diversity
While cultural fit is crucial, avoid the trap of hiring identical personalities. A diverse team brings fresh perspectives, innovative solutions, and competitive advantages.
The best way to achieve a balanced team is to work with experienced HR professionals like P3 People Management. We ensure your recruitment process values both cultural alignment and diverse thinking. Our goal is to find people who respect your core values and have the skills and experience you need.
For expert HR support with recruiting and selecting best-fit candidates, speak to our team for bespoke advice. Get in touch here or request a callback.
Creating an attractive Employee Value Proposition (EVP)
Your Employee Value Proposition (EVP) sets out the unique combination of culture, benefits and opportunities you offer employees in exchange for their skills and commitment. In a competitive job market, an attractive EVP can set you apart from your competitors and help you attract the best talent.
Your EVP might touch on themes such as learning and development, working arrangements, values and culture.
What to include in your EVP
1. Company culture
Describe your company culture and the values and behaviours that underpin it. Be transparent about your expectations of employees and what these look like in action. If prospective recruits can picture themselves in your workplace, there will be no culture shock once they start in role.
2. Competitive benefits package
Be clear and upfront about your employee benefits package. Pay, benefits and flexible working are amongst job seekers’ top motivators in Deputy's annual State of Shift Work report. Understanding what motivates people to change jobs helps to create your benefits offer:
· Better pay (48%)
· Flexible working hours (33%)
· Wellbeing programmes (32%)
· Health insurance (32%)
· Employee Assistance Programme (26%)
3. Career development
Offering clear progression paths and learning opportunities is crucial for both attraction and retention:
· Structured training programmes with clear outcomes
· Mentoring schemes pairing junior and senior employees
· Professional development budgets for external learning
· Internal promotion policies with transparent criteria
· Cross-functional project opportunities for skill building
4. Work-life balance support
Businesses that offer hybrid or remote working options say it has helped them attract and retain talent and improve engagement. Be clear about access to flexible and hybrid working opportunities in your EVP and throughout the recruitment process.
Communicating your EVP effectively
Your EVP should be evident at every stage of the recruitment process, not just in job adverts. Make sure to showcase it across your online channels, during interview, and in all of your recruitment communications. Share real-life employee experiences, and be transparent about the benefits, opportunities, and expectations of working for your business. Managers may need to access training to be confident communicating your EVP.
Mastering the interview and selection process
The interview and selection phase is where theory meets practice. Getting this right can be the difference between attracting top talent and losing them to competitors.
Create a consistent candidate experience
In Spring 2025, 31% of employers had hard-to-fill vacancies. Struggling to fill roles makes every candidate interaction crucial for your reputation and success. Here are some best practice tips:
· Be responsive: Reply to applications within 48 hours with clear next steps
· Detailed briefings: Be clear and upfront about interview format and expectations
· Personalise your interactions: Tailor communication to the role level and candidate background
· Transparent timelines: Set realistic expectations and meet your deadlines
· Constructive feedback: Offer prompt, specific feedback regardless of the interview outcome.
Manager training for effective interviews
Managers need to have emotional intelligence and strong interviewing skills to get the best from candidates and assessments. Managers may benefit from training in the following essential areas:
· Creating comfort: Techniques for putting candidates at ease in both online and in-person settings
· Questioning skills: Asking a mix of behavioural and situational questions to test a candidate’s capabilities
· Balanced assessment: Evaluating both technical competence and cultural fit at the same time
· Consistent evaluation: Assessing against essential criteria and role-specific requirements
· Recognising bias: Identifying and avoiding unconscious bias throughout the process.
Would you or your management team benefit from interview skills training? Take a look at our online learning catalogue and in-house learning to see how P3 can support with upskilling.
Fighting for top talent
In a market where the strongest candidates often receive multiple offers, having a strategy to secure your preferred choice is essential. You must be prepared to act quickly and highlight why any top candidate would choose your business.
How to attract and secure the best talent:
· Exceptional standards: Maintain outstanding communication and professionalism from your first contact throughout the process
· Benefits beyond salary: Offer comprehensive benefits, training and development for career growth
· Connect with your purpose: Show how their role makes a meaningful contribution to your organisation’s success
· Be ready to negotiate: Be prepared to discuss flexible terms that matter to them, including salary.
Pro Tip: The best candidates often choose employers based on the recruitment experience itself, viewing it as an indicator of how they will feel as an employee. Make your employee experience exceptional to stand out from the crowd.
Employee retention strategies that work
To get retention right, we need to understand why people leave and what makes them stay. The data reveals some surprising insights that may challenge how you think about employee motivation.
Why people leave jobs
34% of UK employees leave to join another organisation each year, and the reasons are complex and varied:
· Tempted by higher salary
· Leaving to start their own business
· Limited career progression
· Lack of fulfilment
· Heavy workloads and burnout concerns
· Poor work-life balance affecting personal well-being.
While salary attracts people to new roles, it is less of a priority for employees choosing to remain with their employer. Stability, healthy work-life balance, and colleague relationships are higher-ranking factors influencing long-term satisfaction.
The cost of poor retention
Understanding the financial impact of high employee turnover helps justify investment in retention.
· £30,614 average cost per employee turnover (including replacement costs)
· £5,433 average cost for each new employee replacement process
(Oxford Economics and Unum via Capacity Insights, 2024)
Total costs can range from 30% to 200% of an employee's annual salary when you account for lost productivity, knowledge transfer, and training investment.
Nine evidence-based retention strategies
1. Create meaningful development opportunities that add value to both business and individual.
2. Train managers to be great leaders who engage and build trust with their team.
3. Encourage internal career moves and actively promote from within
4. Conduct regular employee surveys and act on findings to improve experience.
5. Reward and recognise employees to make them feel valued.
6. Manage workloads to prevent overwhelm and burnout.
7. Offer flexible working patterns that support work-life balance.
8. Invest in new technologies to improve efficiency and job satisfaction.
9. Pay attention, not just more money to what employees truly value.
The shift from Great Resignation to Big Stay
For years, we’ve been talking about the ‘Great Resignation’, but recent trends suggest the landscape is changing. The 'Great Resignation' has been replaced by the 'Big Stay', with employees opting for job and wage stability over moving elsewhere. This presents both opportunities and challenges for employers. On one hand businesses are able to retain more employees, but to maintain engagement, they must invest in developing and upskilling these loyal employees.
Outsourcing recruitment
For SMEs struggling with recruitment challenges, Recruitment Process Outsourcing (RPO) offers a complete end-to-end solution that goes beyond traditional recruitment agencies. The RPO provider acts as a neutral extension of your HR team to find the right cultural fit and attract candidates who align with your organisation's values and purpose. It can be a cost-effective way to expand your team and deliver a growth strategy.
RPO benefits
For a fixed fee, RPO delivers peace of mind through:
· Comprehensive, up-to-date employment law knowledge
· Strategy creation and workforce planning
· Compliance and risk management
· Well-crafted job advertisements that resonate with your ideal candidate
· Carefully selected online advertising
· Advanced analytics and insights
· Telephone screening to check suitability
· Candidate shortlisting for interview
· Interview presence and support
· Taking care of admin-intensive tasks
Future-proofing your recruitment strategy
Embrace technology and AI
AI skills and knowledge are in high demand. Consider how technology can:
· Streamline application screening
· Improve candidate matching accuracy
· Enhance interview scheduling and coordination
· Provide better analytics
The value of apprenticeship programmes
Despite their value as an effective aid for recruitment and retention, SMEs are less likely to consider apprenticeships as part of their strategy. In 2022/23, only 37% of UK SMEs had an apprentice join their team. Apprenticeships allow you to build a workforce tailored to your needs, and mould employees to your culture and ways of working from day one.
Monitor and adapt
Regular review of your recruitment and retention strategies is essential. These are some key metrics you may want to track:
· Time to hire and cost per hire
· Candidate quality and source
· Retention rates by role and department
· Employee engagement and satisfaction scores
· Exit interview feedback themes.
Regional considerations in Manchester, Altrincham & Cheshire
Businesses in the North West face competition for top talent from London and other key UK cities. Factors that may support differentiation include:
· Strong technology and financial services sectors in Manchester
· Excellent transport links enabling hybrid working
· A growing startup ecosystem and support network
· Strong university partnerships.
Knowledge and experience of the regional business landscape is a key factor in selecting external support with recruitment and retention.
A changing recruitment and retention landscape
The recruitment and retention landscape will continue to evolve, driven by technological advancement, changing employee expectations, and economic pressures. Success requires a strategic planned approach that balances immediate business needs with long-term vision. Just because you’ve always done things a certain way, it doesn’t mean you should carry on doing the same things.
Key takeaways for SMEs:
· Invest in skills-based recruitment and be prepared to develop talent
· Prioritise culture fit while maintaining a diverse workforce
· Embrace flexible working as a competitive advantage
· Focus learning and development and engagement to boost retention
· Consider outsourcing recruitment for specialist support
· Stay agile and adapt strategies based on market feedback
By implementing these strategies with thought and consistency, your SME can turn recruitment challenges into competitive advantages, and build a strong team to drive business success.
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