Over two-thirds of UK employers say employee benefits costs are their top financial pressure

Gallagher’s latest Workforce Trends Report reveals that over two-thirds UK companies now rank employee benefits costs as their biggest financial challenge. But cutting back for short-term profitability may see companies miss long-term opportunities to boost employee retention and productivity.

Over the last decade, employers have consistently complained about a talent-crunch – with premium skills becoming increasingly difficult to source. In the late 2010s, high employment meant finding talent became difficult – while in the post-lockdown months, the ‘great resignation’ saw many workers re-evaluate careers they had been told were ‘essential’ during the pandemic, but which they did not feel valued in to that end.

The company benefits package could be the key to addressing those issues. But it has long been a bone of contention among employers as to how – with half of all UK companies found to paint benefits as a top financial challenge, according to research from Gallagher in 2025.

One year on, it seems that even more companies are divided on how to address this challenge. Gallagher’s latest Workforce Trends Report shows that 69% UK companies now rank employee benefits costs as their biggest financial challenge.

At the same time, 49.7% also say they are unclear how to appeal to a diverse workforce with different preferences, and 37.5% insist they are unclear how to design employee communication that see proper engagement with benefits. But, perhaps unsurprisingly, the headline worries about cost mean that many UK employers are actually scaling back on key areas of support at a time when many employees are facing cost-of-living pressures and financial uncertainty.

For all the confusion about what a diverse workforce supposedly wants, it may not exactly be rocket science, then. While 44% of organisations now offer no financial education to employees, compared to 37% a year ago, it appears that some employers may be missing opportunities to ensure their benefits packages give high value to employees. At the same time, 81% still provide only limited “salary sacrifice” options, which can streamline costs for both employees and employers alike – while ensuring coverage in key areas that workers need support in.

With that being said, in some areas there was clear progress to be seen. The number of companies offering flexible holiday and annual leave policies increased significantly, rising from 31.7% to 46%, reflecting growing employee demand for greater control over time off. Meanwhile, the inclusion of pension schemes within flexible benefits has increased dramatically to 86%, up from 55%.

These moves may also align well with the results many employers hope benefits actually yield for a company. A 30% chunk aim to improve company culture with their benefits, while 19% hope to align benefits with employee value proposition boosts – while similar numbers aim to see improvements to attrition and recruitment stem from benefits changes. And ultimately, this may tie to an admission that spending money to keep workers happy ultimately brings more value than it spends.

David Piltz, CEO at Gallagher’s UK benefits and HR consulting division, said, “As employees continue to navigate cost-of-living pressures, some employers are making difficult trade-offs between managing costs and retaining talent. Now is the time for organisations to modernise their benefits strategies to meet the needs of today’s workforce. By using online benefits platforms, employers can improve access, personalise offerings and save money by prioritising only the offerings that employees value the most.”