In today's business environment, UK organisations face a combination of unique and complex challenges in the labour market. While unemployment increased slightly from April to June 2025, there is also a labour shortage that is affecting many employers.
This labour shortage is due to a variety of factors, including a skills mismatch, where the skills that employers need don't align with the skills that job seekers have. According to research from the Industrial Skills Strategy Council, by 2030, 20 per cent of the UK workforce could be significantly under skilled for their jobs.
The disconnect between overall unemployment rates and growing skills shortages means HR leaders and C-suite executives should rethink their approach to total compensation and employee benefits strategies. The traditional salary-first mindset is giving way to a more sophisticated understanding of what truly drives employee attraction, engagement and retention.
And UK employers agree, with 61 per cent recognising that how they support the health and wellbeing of employees will be critical to their recruitment and retention strategy. This shift away from a salary-first mindset is also reflected within the workforce, with 34 per cent of employees in the UK preferring better support for their wellbeing over a 10 per cent salary increase.
This article explores how forward-thinking organisations can navigate these challenges by adopting a more holistic approach to employee benefits and total compensation. It will examine current labour market conditions and emerging trends in employee benefits. It will also present practical strategies that HR leaders can adopt to create compelling value propositions that resonate with today's workforce, and that could ultimately help improve recruit and retain top talent.
Statistics paint a picture of a UK job market that is becoming more challenging for job seekers, while still presenting recruitment and retention challenges for employers.
The UK job market is facing headwinds due to a variety of challenges, chief among them is a tight labour market, with labour shortages currently affecting 38 per cent of businesses. This tight labour market can be attributed to reduced net migration from the EU post-Brexit, the skills mismatch, the ongoing retirement of baby boomers and a rise in chosen economic inactivity, particularly among older workers, but also because of long-term illness.
To compound this, the UK has been facing a 'productivity puzzle', where the country’s productivity has slowed since the 2007/8 financial crisis. Taken together, these factors place significant pressure on organisations’ efforts to recruit and retain talent.
With recruitment and retention becoming a central focus for many employers and HR departments, there is a growing importance of offering comprehensive and flexible benefits packages to help bolster these efforts.
However, when it comes to employee wellbeing in general, today's employers face an increasingly complex landscape: economic uncertainty, fragmented remote and in-office teams, and widespread workforce mental health challenges. And with financial concerns being one of the key drivers of low mental health for workers, there is a growing recognition that wellbeing is multidimensional.
These multifaceted challenges underscore the need for employers to help support the holistic health of their workforce. To do this, employers can shift their focus from addressing the poor health of individual employees to building a healthy workforce. They can do so by taking a portfolio approach: addressing poor health and promoting good health, and creating healthier teams, jobs and organisational environments.
Most importantly, this approach aligns with what employees want. Research from Saïd Business School found that for many employees, factors contributing to their wellbeing—including mental and physical health, work-life balance and job satisfaction—are as crucial as traditional incentives such as salary.
Employers can differentiate themselves and help improve retention by aiming to take a holistic view of their compensation package. Here are several areas HR leaders should consider when expanding the services and support they provide to employees:
While return on investment (ROI) metrics remain important, forward-thinking organisations are increasingly looking at value on investment (VOI). This approach considers qualitative business attributes such as morale, recruitment success, retention rates, employee satisfaction and engagement levels.
A valued, well-supported workforce is more engaged and productive. Organisations with engaged employees experience 18 per cent higher productivity and a 21 per cent decrease in turnover. Moreover, research shows companies that foster a “culture of health” experience employee turnover rates 11 percentage points lower than those that don’t.
As we progress through 2025, the UK workforce and economy will continue to evolve, presenting both challenges and opportunities for businesses. By taking a comprehensive approach to employee benefits and focusing on creating value for employees, organisations can better position themselves as employers of choice in this competitive landscape.
For HR professionals, benefits managers and C-suite executives, a key opportunity lies in understanding and responding to the changing needs of the workforce. By offering comprehensive, flexible and innovative compensation packages that encompass the whole person, employers can help support a happier, healthier—and by extension, productive—workforce.
Working with a partner like TELUS Health can bring value to your compensation package, and ultimately help you unlock measurable impacts for your business and your people. Learn how our end-to-end solutions can help support your people and strengthen your business.