Employment legislation hitting SMEs


More evidence has emerged of the damaging cost of excessive regulation with half of Britain's small businesses saying that employment legislation is their biggest administrative headache and is hitting their bottom line.

Exactly half of SMEs in the UK believe that recent changes to employment legislation, with regards to maternity, paternity and disability rights, have resulted in additional costs in the day-to-day running of their business.

A survey of 500 SMEs carried out for the Tenon Forum, an independent think tank made up of leading entrepreneurs from the UK's SME community, also found that the financial burden of employment legislation increases as businesses increase turnover and staff numbers.

Four out of 10 organisations with between five and nine staff members say that employment legislation had caused them to incur additional costs in the daily running of their business. This rises to almost six out of 10 (57 per cent) organisations with 10-199 staff, and seven out of 10 (68 per cent) of those with 200-499 employees.

Six out of 10 (58 per cent) of companies with a £1-5m turnover said that recent employment legislation had resulted in additional costs, rising to eight out of 10 (79 per cent) of firms with a turnover of £20m+.

"Overall, 49 per cent of SMEs say they haven't incurred extra costs yet, but further changes in legislation will increase employers' costs over time and businesses should be prepared for this," said Richard Kennett, Chairman of the Tenon Forum.

"Entrepreneurs start businesses to make a profit; if it becomes difficult for them to do this because of legislation, then this will affect the level of job creation, which helps no-one.

"Most employers know it is in their interest to develop a long term and mutually beneficial relationship with their staff," he added.

The study reinforces findings earlier this year in UK Business Barometer (UKBB), run by The University of Nottingham's Institute of Enterprise and Innovation, which found that a quarter of small businesses questioned had purposely avoided growing their businesses to avoid the impact of regulation.

Almost all said that their decision was because of the impact of employment legislation.

The government's own advisors, the Small Business Council, have also accused bureaucrats of stifling small businesses and discouraging the creation of some 200,000 jobs.

The latest round of legislation, which will include increasing maternity leave from six to nine months and allowing fathers to take over some of that leave for themselves as well as extending the right to request flexible working, is particular unpopular with small businesses.

A British Chambers of Commerce survey found earlier this year that eight out of 10 firms were opposed any the extensions to maternity leave, with firms employing fewer than 50 people particularly unhappy with the proposals.

The legislation is also likely to further discourage some employers from hiring women at all. Already eight out of 10 HR professionals in Britain believe that bosses automatically think twice before employing women of childbearing age.

"On the whole, the businesses we work with think employment law is probably the most complex and far-reaching area of all the legislation and regulation that applies to them" Richard Kennett continued.

"It is arguably more complex than tax, health and safety and the regulations of the Financial Services Authority. It is inevitable that, with legislation this complex, there will be associated costs for SMEs."