Any tax break for small businesses has to be welcomed, but the new Employment Allowance* is just one small element in the challenges companies face when wanting to take on staff says small business adviser David Brassington of CMC Partners. Here he considers what those challenges are.
The recently announced Employment Allowance, which provides a £2,000 reduction in employer National Insurance contributions from April 2014, will be welcomed by small businesses*. Any reduction in the tax burden faced by small employers has the potential to improve the viability of the business and encourage them to take on staff. But whilst this development is a positive move for small businesses, it is but a small component of the total administrative and cost burden that they face when starting to expand.
Let’s consider the challenge faced by a small business owner considering taking on their first employee. These are the additional requirements on the business:
1) Ensure the pay to be offered complies with the National Minimum Wage requirements.
2) Prepare an employment contract that complies with (changing,) employment legislation and, so far as is possible, protects the employer in the event the employment does not work out as anticipated.
3) Follow a recruitment process that complies with all equal opportunity legislation.
4) Check that the proposed employee is legally entitled to be working in the UK.
5) Register as an employer with HMRC.
6) Manage the payroll.
- Calculate and collect NI and income tax.
- Advise the employee of their pay and deductions.
- Pay the employee.
- Possibly collect student loan repayments.
- Possible administer tax credit payments
- Pay collected taxes to HMRC within the legal timeframe.
7) Take out an employer’s liability insurance policy
8) Ensure appropriate training records are kept, detailing training provided to the employee.
9) Possibly conduct a Disclosure and Barring Service check on the potential employee.
10) Acquire and display a Health and Safety Law poster.
11) Prepare a Health and Safety Policy – although it only needs to be in writing when you have five or more employees.
12) Provide Health and Safety training.
13) Ensure the workplace has appropriate welfare facilities and complies with potential Health and Safety issues.
14) Establish appropriate first aid facilities.
15) From 2017 establish an appropriate pension scheme and pay employers pension contributions.
For the small business owner this extensive list provides challenges beyond the immediate financial cost. There is significant work that has to be carried out, and most small business owners will not be able to afford to pay an expert to do it. It therefore becomes an extra job for the owner, requiring on average 12 days per year according to the Federation of Small Businesses. There is also a knowledge issue: whilst information is available online, “you don’t know what you don’t know,” so it is very easy to overlook some aspect of the requirements, and the consequence of non-compliance can be a further cost to the business.
All these items are important in their own right, but we do have to look at the overall burden that is placed on a small business owner wishing to employ someone. It is no surprise, that when confronted by the list of things to do, many owners will decide to muddle through themselves, perhaps with a bit of informal support from family or friends. But as a country that is not the incentive that we should be providing to our budding entrepreneurs!
* Employment Allowance is explained here.
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