Employment Law Cost Puts Sole Traders off Expansion

A new survey of sole traders reveals that the cost of employee pension plans, sick leave and worker-friendly dismissal rules are deterring some small businesses from becoming employers, leading to calls by business organisations to exempt micro-firms from some employment rules.

The British Chambers of Commerce (BCC) polled over 1,000 sole traders to find out what they really think about hiring people. Almost a third of respondents named the forthcoming compulsory pension payments to employees as their main barrier. From 2012 onwards, firms will have to start paying 3 per cent of each employee’s monthly salary into a pension pot — and manage employee contributions and the fund. Under the new law, businesses with fewer than 250 employees start contributing in 2014.

Dr Adam Marshall, policy director of the BCC, said:

“One in three businesspeople with an ambition to grow their business by 2015 said that exemptions from [some red tape] would encourage them to take on their first staff member. Over half of the same group said a reduced or special rate of employer National Insurance Contributions would incentivise them to hire.”

The report showed other barriers to job creation also loomed large — over a quarter of one-man bands said that the dismissal process had put them off employing. The same proportion of sole traders (27%) cited concern about employees’ sickness absence as a reason not to take on staff.

Marshall added:

“The Government’s move to exempt micro-businesses from new regulation fails to take into account the vast amount of existing legislation, which is seen by sole traders as a major deterrent.”

“More needs to be done to give sole traders the confidence to take on staff as their businesses develop.”

For further business advice see our section on employment and our articles tagged under employment regulations.

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