Help offered to smaller firms facing £2.4 billion employment red tape bill

3 July 2009

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Employment law is the costliest bureaucratic burden faced by small businesses in the UK, losing them almost £2.4 billion (bn) per year, according to the latest research from the Forum of Private Business (FPB).

Britain's smaller firms spend £2,394 million (m) every year simply complying with the rules. The figure was calculated based on feedback from members of the FPB in the business support and lobby group's quarterly Referendum survey.

The FPB, formed in 1977, has long been providing small and medium-sized businesses with help and support on employment-related matters. It even publishes a guide on the issue every year – the Employment Guide – which is available both in print and online. It is designed to save owners of smaller businesses time and money by explaining how to comply with the law in plain English.

The FPB has also launched www.smallbusinesschannel.co.uk to provide entrepreneurs with free, concise, video-based information on business-related issues including employment law.

The site's content includes advice on employment legislation from one of the FPB's employment advisers, Jane Caven, a human resources specialist and non-executive director of the FPB. The videos cover matters from contracts of employment to ‘garden leave' and recovering the costs of providing employees with training.

In an introductory video, Mrs Caven explains: "The particular piece of legislation which governs terms and conditions of employment is the Employment Rights Act 1996.

"However, there are a range of other pieces of legislation, such as equal pay and the Working Time Directive, pensions and so on, which are also incorporated. This really is a key area of employment where it is worthwhile seeking professional assistance, in terms of those areas which are required by law to be included [in terms and conditions of employment] and other areas which you might wish to include in line with the requirements of your business."

According to the FPB's research, the amount spent by smaller businesses on employment law was the highest out of all seven different types of legislation categorised in Referendum, surpassing the £2.1bn per year spent on health and safety administration and £1.8bn on tax.

The survey found that smaller business employers spend £259m on work associated with dismissals and redundancy. They spend a further £391m on absence control and management, £237m on maternity, £333m on disciplinary issues, and £1,175m on holidays and any other remaining areas of employment legislation. The average time per month spent on all these different areas of employment law was found to be around 10 hours for each small business.

Companies in the South East were found to spend the most on employment law out of 12 regions surveyed, at £361 million per year. London firms faced the second-highest bill at £332m, followed by £272m for those in the North West. Smaller businesses in the North East were found to face the smallest annual bill for complying with employment law, at £71m.

FPB member Rachel Andrews, the Financial Director of Hertfordshire-based Andrews Computer Services Limited, attended a meeting of the Government's Better Regulation Executive (BRE) on 26 June 2009 to put across small business owners' calls for less regulation.

Mrs Andrews, whose company provides computer training, software and equipment, said she believes small businesses spend a lot of time and money dealing with employment red tape because the law is "skewed" in favour of employees.

She said: "With all the legislation, you often feel as though business owners are being treated like morons.

"There has got to be some realism – I wonder if the policy-makers have ever done any cost-benefit analysis on these things. Most of us simply haven't got the time to go through and understand what these rules are trying to do."

The FPB's Policy Representative, Matt Goodman, also attended last week's meeting of the BRE. The event followed reports that the Government is not pushing through plans to reduce regulation following its scrapping of ‘regulatory budgets' that had been earmarked for individual departments.

The FPB is urging the Government, through a range of lobbying and campaign activities, to reduce the bureaucratic burden placed on smaller businesses.