Red Tape October hits small firms

Changes in age discrimination laws, fire regulations, the National Minimum Wage and maternity rights will pile the pressure on smaller firms.

The Forum of Private Business (FPB) is warning that new laws which come into force in October could push many small firms to the limit.

Campaigns Manager Victoria Carson says that the Government seems intent on binding small firms with red tape whilst failing on their pledges to cut it.

She said: "Firms are facing the prospect of having to review their practices in order to come into line with fresh age discrimination laws and fire regulations. That alone will be a costly process to administer and yet another distraction from running their business. Failing to bring themselves up to date could cost them in terms of an employment tribunal or a hefty fine."

Form filling

Samantha Bevan is the Managing Director of Anchorstone, who specialise in care for the elderly in a residential setting in Farnham, Surrey. She says the new regulations have taken significant time to implement.

She said: "It has taken me nearly a month to implement everything, the extra form filling reduces profitability and distracts me from my core business which is looking after my residents."

Meanwhile, small firms will have to carry the cost of another increase in the National Minimum Wage, which continues to rise at a rate way above the increase in average earnings. Miss Carson says smaller firms are being hit the hardest.

"The only realistic course of action for smaller firms is to pass on the cost of the increase to their customers. Of course it is unrealistic to increase prices at the same rate as the national minimum wage, so we can see how profit margins are continually being squeezed."

Maternity rights

Changes in maternity rights will mean that firms with fewer than five employees will no longer be exempt from the rule that says firms must hold a job or similar position open for an employee on extended leave.

Employees will no longer have to serve a qualification period to be able to take additional maternity leave, meaning firms could find themselves holding the baby very shortly after a new employee starts. FPB's Miss Carson says the true impact of the changes hasn't been considered.

She said: "Employment regulations are one of the biggest worries for our members. The assessment of the impact of these rules on smaller firms doesn't reflect the reality. They are being hit on all sides by extra costs, for example in recruiting cover for maternity leave, if they can find any.

"If firms struggle to replace skilled workers, they have to reduce efficiency by distributing missing employees' responsibilities across an already stretched workforce."

Employment costs

Mrs Bevan has been keeping a close eye on her increasing employment costs.

She said: "Since 2000 I have kept a subdivision in our accounts for costs incurred from new legislation. Without taking the National Minimum Wage into account, we have seen a 20 per cent increase in staffing costs.

"In this country we have demographics that we should be worried about, staffing costs have to be met by an increase in fees and with our ageing population who, in the future, is going to pay for that?"

The FPB is warning of the danger of small firms cutting their staff as a result of the fresh regulations. Miss Carson said: "These new regulations, whilst aimed at improving conditions for employees could, in practice, backfire. There will be some firms that will fall foul of discrimination laws after becoming reluctant to employ women of a childbearing age, and some that will trip up over new age discrimination laws, despite their best intentions.

"The rise in the National Minimum Wage meanwhile is a direct tax on employment and will do nothing to encourage employers to expand their workforce.

"We want the Government to review the impact of these changes six months down the line. They need to check whether their Regulatory Impact Assessments (RIA) are accurate. All too often RIA is based on a tick box procedure and doesn't reflect the practical impact of red tape."