In a report released this week the British Chambers of Commerce (BCC) calls upon the Government to encourage the UK's sole traders to take on their first employee by exempting them from "burdensome" employment legislation.
The report's findings are based on a new survey of more than 1,000 business owners.
Nearly one in three businesspeople (32%) identified forthcoming pension requirements as the top barrier to taking on staff. The changes outlined in the Pensions Act 2008, which all businesses must begin complying with between 2012 and 2015, appear to be discouraging significant numbers of sole traders from considering taking on employees. Businesses will have to pay a 3% minimum pension contribution towards the retirement savings of staff. For many owner-managers, this will bring with it indirect costs in setting up pension schemes, and changes to payroll systems.
In addition, a quarter (27%) of sole traders identified the dismissal process as a significant or total barrier in taking on staff. This suggests that even before hiring their first employee, sole traders are concerned about the inability to sack employees if they aren't right for a job, or if there is a fall in demand for their goods or services. Implicitly linked to this, more than a quarter (27%) of sole traders found sickness absence an obstacle to growing their business.
The report also found one in three survey respondents who wanted to grow their business said that exemptions from employment law would encourage them to take on their first staff member and one in two sole traders said a reduced or special rate of employer National Insurance Contribution would incentivise them to hire.
Newer business owners have greater ambitions to grow and create jobs. For those starting their own business, the ambition to take on staff decreases the longer a business has been in existence. Over 45% of sole traders operating for less than six months had ambitions to increase their staffing levels by half. This drops to a fifth among businesses that have been operating for more than three years.
Adam Marshall, director of policy at the BCC, said: "In the UK, the proportion of enterprises with no employees has increased each year since 2004. There are currently over 3.6 million sole traders, and while not all of these people want or have the potential to expand, some do. Businesses consistently state that employment regulation prevents them from taking on more staff. If the government wishes to achieve its goal of increasing employment, it must respond to sole traders' concerns, and make changes that encourage them to grow when the time is right.
"Our research shows that new entrepreneurs are more ambitious, and their enthusiasm must be harnessed early on. Exempting new businesses from upcoming pension reforms, either for their first three years in business or until they have more than ten employees, would remove the one of the biggest barriers to job creation. In addition, sole traders tell us that a reduced rate of employer National Insurance Contributions would encourage them to take on their first staff member.
"Existing government initiatives do not go far enough to give today's sole traders the confidence to become tomorrow's employers. The National Insurance holiday created for start-ups is being used by fewer than 3,000 firms, suggesting it needs to be more flexible to allow businesses to benefit. In addition 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.
"Sole traders could play a big role in boosting both employment and growth across the UK. But our research shows that more needs to be done to give them the confidence to take on staff as their businesses develop."
