Current employment law is hurting small business

Current employment law is bad for small business in the UK, according to new market research.

Britain’s small business owners would take on more staff if employment law was improved.

When asked whether current employment law was a factor when considering taking on more staff, the response was surprisingly strong. A massive 39% of small businesses surveyed said they would take on more staff if employment law was made simpler.

Employment law is difficult for small employers to understand– only 25% said that they find it acceptable in its current state. And their lack of knowledge leaves them open to serious risks of errors which could incur serious fines and penalties.

As many as 30% of employers surveyed don’t know the current National Minimum Wage, for example, putting them at risk of a fine which could be as high as £20,000. And 18% of smaller employers don’t know which countries are and aren’t in the EU, meaning they could very easily not check properly that new workers have the right to work in Britain. Again this puts them at serious risk of large penalties

Calculating holiday entitlement for staff on casual hours contracts is one example of a particularly cumbersome process; small firms need to look back at the hours each member of staff worked and any commission they earned over the last 12, or in some cases 13, weeks just to calculate their holiday entitlement. Keeping track of the hours worked by flexible workers, and calculating their holiday entitlement, is also hard for most small businesses. Larger employers will have dedicated, qualified staff and systems which can cope with this, but most small employers don’t.

Frequent, significant and bewildering change

Employment law changes frequently as a result of new laws passed, and of new cases concluded by British Courts. 75% of small businesses surveyed said that keeping up with legislation was a significant drain on their time. Yet if small firms don’t keep up with changes, they risk breaking the law without knowing it.

One recent change to employment law means that any employee is entitled to ask for Flexible Working—which makes small employers’ compliance burden even harder. And the remarkable decision in the recent Lock case could give rise to a need to pay additional sums to staff relating to years gone by. Large employers have access to reserves and new funds, but having to spend thousands of pounds for activity from some years ago could seriously threaten small businesses’ ability to invest in the future or even survive.

Employers between 10-50 staff also expressed their views on some of the most frustrating aspects of employment law. Some of these laws have had to be brought into British law as a result of our membership of the European Union. The laws small employers most want to change include:

  • The fact you aren’t allowed to pay people for unused holiday unless they leave (37%)
  • The removal of the compulsory retirement age (29%)
  • People who get ill while on holiday can reclaim their holiday, and claim sick leave instead (21%)
  • Women on maternity leave continue to accrue paid holiday whilst not actually in work (14%)

Living Dangerously

Despite the very significant risks of not complying with employment law, many employers feel unable to keep up with it themselves yet don’t seek help from an HR service.

40% of smaller employers surveyed said they did not use HR support. Of these, 45% incorrectly believe they are too small to need it – despite admitting that they don’t understand it. 50% of those not using any HR support said they didn’t use any simply because they have never had to. These are shocking statistics. Both groups could well be breaking employment law without realising it. Yet lack of knowledge is not a valid excuse for not complying. This lack of knowledge will cost some smaller firms substantial fines or penalties.

One prominent recent case highlights the dangers of “winging it” as so many small employers are doing. A tribunal case this year saw a Manchester employer required to pay an enormous penalty of around £16,000 to someone who had never even worked for them. The firm’s error was to have rejected a candidate who refused to work on Saturdays—which they did because they required all their staff to work on Saturdays. However because the candidate was Jewish, the employer’s rejection was deemed to be religious discrimination. If the employer had made clear in the job advert that they needed all staff to work on Saturdays, or considered providing the applicant with a shift that allowed Saturday to be one of her two allocated rest days, the penalty could have been avoided.

A better way

Some of small businesses’ reluctance to seek help with HR is understandable. Much of the support aimed at small employers has been seen as expensive and cumbersome. 36% of small firms don’t currently use HR support for exactly this reason. Some of the UK’s most prominent HR support services require small firms to sign up to pay hundreds of pounds per month for 3, 5 or even more years—with no possibility of getting out once the contract has been signed. One employer signed up for an expensive seven year contract and changed their mind the next day, but was advised they could not get out of the contract.

Today, though, new HR services mean that affordable help is available. Small employers can now get expert support at dramatically lower cost without needing to commit for more than one month.

And the government is publically committed to reducing the burden of red tape on Britain’s small businesses. This survey suggests a number of good places for them to start.

Posted: Mon 20 Aug 2018
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