Small Business, Big Employers, Good Employers

Small Business, Big Employers, Good Employers Small and medium sized businesses are the biggest employers in the UK employing 58% of the private sector work force. With spiralling unemployment and recession in the UK the importance of small businesses is coming into play. Areas with a number of smaller employers are more economically resilient than areas that rely on one large employer. For years however Government has ignored this vital sector. Employment in a small businesses has been seen as a secondary status or more insecure than in a large company. Small businesses are frequently mentioned in connection to low standards of employment, or as unscrupulous employers. Legislation has favoured large employers and one size fits all models of employment, and created an increasingly difficult burden for small business owners to manage. The picture painted by employees of small businesses however is very different. Informal and individual recruitment structures work to help the disadvantaged into employment, favours part time working, and supports older workers. Small business employees trust their managers and are happier where they work. Incidents of bullying, and concern over stress in the work place is lower. Every year the number of businesses created in small and medium sized businesses outstrips growth in the small number of large businesses in the UK. If one group really is going to grow and improve the employment situation its the million small business employers. Its time legislators really started to think small first. The FSB has some key recommendations to kick start employment in small businesses. Reform the Job Centre: Tackling unemployment needs employers Graduate Employment: Promoting Graduates to Small Business Enterprise Allowance: Encouraging the unemployed to innovate Occupational Health: Helping Small Businesses Get Healthy Short Time Working: Encouraging training during the down turn. Level Playing Field: Moratorium on Changes to Business Regulation

Good Employers Bridge into employment Small businesses are good employers, who value their staff. Their flexibility with their staff allows them to respond to individual needs and lack of formal procedures to recruitment favours groups who are traditionally disadvantaged in the labour market. Table 1 sets out figures from the 2007 Labour Force Survey, showing how those who were unemployed or inactive 12 months ago make up a larger proportion (5.8 per cent) of the workforce in the smallest of firms. As we move further along the firm-size scale this proportion slowly falls until we get to the largest firms, where only 2.2 per cent of employees were previously unemployed or inactive. Even the proportion of unemployed and inactive amongst the self-employed who report that they have no employees is smaller than the proportion in the smallest of businesses13. Table 1 also suggests that higher proportions of those who were full-time students 12 months ago can be found within smaller firms. At the very least, Table 1 suggests that small firms are more likely to provide the unemployed and inactive with experience in the labour market; a valuable boost to their human capital that larger firms seem less likely to provide. Table One: Status of employee 12 Months Ago Working in paid job or business Current workforce by size of private sector firm, according to number of employees; column percentages. Self employed no employees 1 10 11-49 50-249 249+ 92 88.1 88.7 92.1 94.2 Unemployed and inactive 4.4 5.8 4.6 3.1 2.2 FT students 1 4.4 5.3 3.5 2.4 NA 2.7 1.7 1.2 1.3 1.1 Office of National Statistics; 2007 Labour Force Survey, April June. Qualifications and Training As well as offering a bridge to employment for the unemployed small businesses also have a higher proportion of workers with lower levels of formal education. As can be seen in table two 10.8 percent of employees in micro businesses have no qualifications as opposed to 5.6 percent in large businesses. In comparison, only 15.2 percent of employees in micro firms are degree educated in comparison to 31.3 percent in large businesses. This is interesting because smaller businesses do report that they rate

qualifications highly, in fact more highly than large recruiters, when looking for employees. Table Two: Highest Level of Educational Attainment Degree or higher qualitication Current workforce by size of private sector firm, according to number of employees; column percentages. Self employed no employees 1 10 11-49 50-249 249+ 21.4 15.2 18.7 26 31.3 Other higher education 8.3 8.3 9.7 10 12.6 A-level or equivalent 27.1 25.6 25.4 22.6 20 GCSE grade A to C or equivalent 18.2 25.8 24.4 21.6 19.3 Other 13 13.8 12.3 11.9 10.7 No qualification 11.1 10.8 8.9 7.3 5.6 NA 0.7 0.6 0.6 0.4 0.6 Office of National Statistics; 2007 Labour Force Survey, April June. Given the figures above and those from Table 1 [which suggests that those who were fulltime students 12 months ago make up a larger proportion of employees in small firms], there would seem to be a case for particular focus on supporting small firms and their employees in continuing to improve opportunities for life-long learning. Most statistics however suggest that small firms engage in less formal training being more likely to have informal or on-the-job training taking place in small firms. The FSB Members Survey 2008 agrees with this with 48 percent of firms surveyed reporting that training has been delivered by staff members in the workplace. It is also interesting to note that, when asked of the support that would help them boost training, 62 per cent of respondents to the FSB study suggested (i) help with funds for training. Training that leads to a formal qualification to be less prevalent for a number of reasons. For instance, small firms do not have the economies of scale to provide large formal programmes of training20. Its really important 31 percent had used an external private trainer compared to only 10 per cent who had used government funded train to gain. Clearly government needs to work to ensure that publicly funded training is useful and available to small businesses. Small businesses are unaware of wage compensation schemes to help them afford staff training.

Gender Age and Flexible Working When surveyed 27 percent of Small businesses offered flexible working for all staff, a further 35 percent offered flexible working to any member of staff who requested it, and 4 percent restricted flexible working to staff with children under 16. In the vast majority of small businesses flexible working is available in some form for staff. The FSB has frequently seen a difference in understanding between business in what flexible working actually means, from this survey it was clear that the vast majority of businesses who told the FSB they did not engage in flexible working had a much more limited idea of what this entailed then businesses who offered it to all staff. Which of the following do you believe to be included in flexible working? All Do you offer Flexible Working? Yes to All Staff No Part time work 42 64 38 Changed hours 53 75 54 Shift Work 12 17 14 Guaranteed time off for medical appointments 16 30 9 Having a core hours system 30 42 42 Working from home 22 43 20 Flexible about whether employees actually work 10 18 11 Not Sure 10 7 24 What is striking from this response is that nearly a quarter of businesses who say they do not offer flexible working have indicated that they are not sure what flexible working includes. They were also less likely to recognise setting up home working, so part time work as flexible. There is no agreed definition of what flexible work means and a surprisingly high number of small businesses believed that it entails being flexible about whether staff actually do any work. There is a greater prevalence of part time working in small businesses; according the FSB employment survey 60 percent of small businesses owners always considered whether a job could be part time when they are recruiting. This is positive for people with caring responsibilities or health problems who want to stay in work or return to work flexibly. As can be seen from the table below women make up a larger proportion of the work force in small Businesses, as do older workers.

Gender, Age and Part-time Working Proportion of employees who are female Proportion of employees who are working part time Proportion of employees who are aged 50 65 Current workforce by size of private sector firm, according to number of employees; column percentages. Self employed no employees 1 10 11-49 50-249 249+ 28.3 48.2 45.2 39.5 37 25 32.3 25.9 17.6 13.6 22.5 15.4 13.3 12.8 11 Office of National Statistics; 2007 Labour Force Survey, April June For small businesses part time workers offer them more flexibility to the demands of their business and offers savings compared to full time employee. Making it a better way for a small business to expand, or even take on a first employee Employment Relations in Large and Small Firms and the Recession Generally the employment relations in small businesses are better for the employee. For instance in the national Workplace Employment relations 67 per cent of employees in the Small businesses strongly agree that managers treat them fairly, compared to just 53 per cent of those in large firms; reflecting an underlying trend, where the proportion of employees reporting fair treatment falls, as the size of the firm increases. 65 per cent of employees in small firms either agree or strongly agree that their managers can be relied upon to keep their promises; compared to only 46 per cent of employees in large firms. A similar split between large and small firms emerges when employees are asked about the sincerity, honesty and fairness of their managers. Employer-reported scoring of perceptions of employment relation within the firm Manager/employee relations (1 = very poor; 5= very good) Employee- reported scoring of satisfaction within the firm Employee Statisfaction (1 = very dissatisfied; 5- very satisfied) Workplace Employment Relations Survey, 2004 Firm Size All 5-24 25-49 50-249 250+ firms 3.80 4.08 3.71 3.60 3.39 3.41 3.52 3.39 3.37 3.26 The recession has put a real strain on small businesses, and may have had to reduce staff members or hours as a result. In the last twelve months 19.4 percent of FSB members have had to make a member of staff redundant compared to just 11 percent previously. A

further 14 percent are considering making staff redundant in the next twelve months, and 19.5 percent have cut staff working hours. Despite this 90 percent of small business owners have reported that their staff have been supportive during the down turn and 92.6 percent find their staff loyal. These close and supportive relationships are essential to how a small business works and their success. However these relationships and informal processes are increasingly being regulated for and forced through inappropriate difficult legislation.

Reform the job centre: Tackling unemployment needs employers JobCentre Plus has become a targets driven organisation that is perceived to be more about processing benefits than actually supporting work. Among Micro businesses, who make up 84 percent of employers in the UK less than 20% percent use the Jobcentre to recruit 1. This means the vast majority of jobs are not advertised in Job Centres which should be the most comprehensive free national advertising service for employers. Businesses are instead advertising in local newspapers and using employment agencies costing business thousands of pounds. In 2002 the Office of National Statistics (ONS) estimated that only 44 percent of all job vacancies are advertised through Jobcentre Plus. Our data would suggest this figure is far lower for small businesses vacancies. The gap the government has created between tackling unemployment and dealing with business is counterproductive. We do not believe that unemployment can be effectively tackled without considering business needs and skills. Jobs will only be created by business and it is vital that the Jobcentre meet business requirements to effectively support and encourage employment. Small businesses are responsible for a disproportionate amount of job creation in the UK but the Jobcentre is currently failing to engage with this sector. Only 1.7% of small businesses are part of the Local Employment Partnership, the governments flagship offer to business from the Job Centre. This scheme needs to be drastically reformed to make it work for small employers rather than subsidising the recruitment activities of big businesses and large HR department. FSB Recommends making sure jobcentres are about Employment not benefits: To drive forward enterprise and economic growth in the UK Jobcentre Plus, Businesslink and Skills boards need to be working together. This will give the job sector a better focus on business needs and skills that are really needed locally for employment. 1 FSB employment Survey July 2009

Dedicated small business manager Large employers who apply through Jobcentre Plus have a dedicated local manager who has a relationship with the business and works to understand the business need and only put forward suitable applicants. Small businesses who recruit less frequently clearly cannot have this same level of dedicated service however there could be a dedicated small business manager in each Jobcentre. Funding and training for small businesses FSB are concerned that the majority of public financing and incentives are going into large businesses and multinationals. Only 10 percent of small businesses have used train to gain and they have very low levels of satisfaction with the training it provides. Yet this is the sector that struggles most to afford private sector training. While 69 percent of apprentices work in small businesses, only 5 percent of small businesses are aware of the funding they can receive to help them employ an apprentice. Government should commission research to look at where unemployment, training and business funding initiatives go. The FSB are concerned that the majority of money available to business for employees and training, such as access to work, goes into the public sector and large businesses who are better able to bid for funding but are not most in need of support. Overhauling the jobcentre website to make it fit for 21 st century recruitment Recruitment has increasingly moved online. But the Jobcentre website for advertising jobs is not fit for purpose in the 21 st century. TO offer a service that employers and job seekers expect the Job centre website needs to be able to: 1) Offer a working search function 2) Allow Jobseekers to upload CVs. 3) Filter applicants for job so only suitable applicants apply to employers 4) Be capable of emailing job seekers when suitable jobs are posted online

Promoting Graduate Internships to Small Business We believe that the Government need to act to increase graduate employment in the recession. Graduate internships in traditional larger companies have been cut and Small Businesses need to be encouraged to take their place. There are a number of potential benefits for small businesses which engage in internships: improving existing products or services creating new products or services increasing market performance from new marketing opportunities Gaining useful skills The Internships would give graduates vital work experience and improve their employability skills. Research from existing schemes suggests that 25% of the graduates who take part will subsequently be offered a job. In the West Midlands the RDA has already created a graduate internship scheme which has created 100 placements in its first week. Local initiatives need support nationally, with advertising to all SMEs, a single website, and support so existing schemes can expand their capacity. The most important role the government still needs to play is advertising schemes directly to the SME market. The FSB is concerned that in a drive for numbers of places the importance of supporting small businesses will be lost. The FSB Recommends the creation of a scheme that offers Up to three month project-based internships for graduates Job design and graduate matching service for employers National advertising A dedicated web site to allow employers to advertise placements Investment in the Shell Step Scheme to create extra places Helpline support for graduates and employers

Enterprise Allowance Scheme With increasing unemployment it is likely that more people will look at becoming self employed. At the same time increased self employment will create jobs and reduce unemployment still further. The UK needs to make sure that self employment is a real option for the unemployed, and that businesses created in the next twelve months flourish and grow. Studies show that new small firms grow at a faster rate than larger companies, and create more employment opportunities even when corrected for their higher probabilities of exit. 2 Creating a modernised Enterprise Allowance Scheme would assist this There are examples from around the world, including New Zealand and Ireland, of Enterprise Allowance Schemes in action. In the UK the New Deal does encourage about 3,000 people a year to go into self employment but the FSB doesn t believe that this goes far enough at the current time and is not well advertised enough. Recommendations An Enterprise Allowance in the first year of business: 200pw for 24 weeks allowance ( 4,800) 100pw for 24 weeks allowance ( 2,400) Investment Grant: A grant should be available so new businesses can bid for money to investment for tools or equipment. Access to support and training All business plans should be checked for viability by a business advisor before the individual receives an allowance. The claimant should be able to return to their full benefits after 6 months if the business is not successful. On Going Support: Whether this is with the enterprise agency providing the business planning support and doing the regular checks or with a Mentor, such as provided by the Princes Trust is essential. 2 Does Self Employment Reduce Unemployment? Journal of Business Venturing 2008 A Roy Thurik

Occupational Health Good health is good for business. Good work is good for health. Increasingly when people have long-term sickness problems or caring responsibilities it is seen as important for them to maintain a link to the world of work. Part time work, varied hours and equipment adaptations can all be used to ensure that employees can stay in work and employers can keep a valued member of staff and thus in the long run save money. The majority of small businesses will go out of their way to accommodate the needs of a valued member of staff. Staff retention is a high priority for them as the higher proportion of older workers in small businesses mentioned earlier demonstrates. However small businesses do not have the finances, knowledge or expertise to be confident dealing with the changes necessary and need access to occupational health to guide them and even stop common work related health problems early. Some local authorities, such Westminster Council, financed through the Westminster PCT, have developed programmes which provide free occupational health advice including at work visits for small businesses. This engages employers directly in the health of their employees, improves staff retention and can stop employees with health problems from slipping out of employment and onto incapacity benefits, and long term unemployment which will further affect their health and long term chances of returning successfully to work. Recommendations: That every PCT in the country funds free occupational health access for small businesses. Financing such services will help them demonstrate their commitment to national targets to improve the health of working age people. That the cost share suspension on Access to Work funding be extended permanently and that the Government makes a more concerted effort to advertise this excellent service to small businesses.

Short Time Working A short time working subsidy would enable employers to avoid immediate redundancies and retain essential staff and skills - making business success more likely in both the short and longer term. It would also reduce the personal and social costs incurred by long-term unemployment and increase economic demand by limiting the income reductions faced by workers on short-term hours or temporary lay-offs. The Government have continued to concentrate on new jobs through out the recession. The FSB believes that supporting existing jobs is vital to coming out of the recession, this proposal will save benefits payments, and encourage retraining on the job. Any business which agreed to put an employee into a training scheme instead of making them redundant would receive a tax cut on their overall employer NICs bill. The cut would be worth 3,000 per employee trained, and would help pay for the training. The tax cut would be granted on condition that: The business can demonstrate that it has a genuine need to reduce the number of labour hours, on the basis of existing market conditions; The business agrees to switch employees on to short time working instead of making them redundant; The employee undertakes training, paid for by the business; The business is fundamentally viable, and is not near bankruptcy. How it would work: Private sector employers, who agree to put an employee into training and shorttime working, rather than making them redundant, would receive a credit against their Employers National Insurance Contributions. The credit would be worth 3,000 for any full time employee who is moved on to a combination of training and short-time working (between 8 and 32 hours a week). Part-time employees could also be eligible for the scheme, provided they were working for over 8 hours a week, It would be a once-off credit, for 20010-11 only.

Moratorium on changes to business regulation Job creation is easier in a predictable regulatory environment. To boost the chances of job creation over the next 12 months the Government should halt all new business regulation and speed up its simplification programme. The problem of regulation has been exacerbated by the sheer amount of legislation that has been introduced affecting firms in recent years. In 2008, 57 new or altered regulations affecting businesses affecting business were brought into being, with a similar number expected in 2009. To put this into the context of job creation, 60 per cent of businesses listed regulation as an obstacle to success in BERRs annual survey of small firms (2007). For 14 per cent, it was the single biggest obstacle. 3 According to the FSB survey of members businesses biggest problems with regulation are The number of different regulations and requirement 61% Keeping up with changes 59% Uncertainty that you have got it right 53% In a 2008 survey of FSB members 27 per cent of businesses who wanted to expand rated fear of increased regulation as a difficulty in expanding their business as a very important factor. 4 Of the businesses planning to down size or close, 50.7 per cent rated regulatory burden as very important to their decision. This was the second most important factor behind retirement for closing a business, employment law came third. The FSB proposes that all changes to business regulations are halted for the period of the economic downturn. The majority of changes business are currently being asked to make are minor alternations that will not significantly affect employment. Even changes that are supposed to simplify the regulatory environment impose one off costs, time and changes that business could do without when they are struggling in the current economic situation. 3 Taken from the BERR Annual Survey of Small Businesses Opinions February 2008 4 FSB survey of 8,742 businesses conducted in 2008

The value of an Apprenticeship The FSB believes that the value of an apprenticeship can be raised by: Government providing an upfront financial benefit to encourage a small business to take on an apprentice and invest fully in their training. Employers being prepared to pay a sufficient wage package as an incentive for completion. The FSB advocates the raising of the minimum wage for apprentices from 95 to 123 per week. 5 This will increase the prospect of retaining the service of the apprentice after completion. Apprentices must endeavour to complete their apprenticeships to ensure that the investment goes back into the business and the economy. A Micro and Small business (only) Apprenticeship Fund Train to Gain has a budget of 1billion and it is vital that the majority of the fund is designated to the hardest to reach small businesses currently only 350million is going to Small and Medium sized enterprises - this is not nearly enough when you consider that funding in certain regions is drying up and that 99.3 per cent of businesses in the UK are small. A designated fund should be allocated out of national skills budget allocations to assist the hardest to reach small businesses. It needs to be a ring-fenced amount available to Micro and Small Enterprises (only) to ensure that there is no deadweight loss whereby medium and large businesses can access funding even though they have training plans and training budgets in place. Wage contribution In a recent FSB Apprenticeships Survey of 1,300 business owners, 95 per cent of businesses were unaware of wage contributions on offer to train an apprentice 6. The Learning and Skills Council (LSC) has confirmed that it has had a significant under spend on the take-up of wage contribution payments to small businesses and this is largely due to a lack of awareness of the policy. A national awareness campaign needs to be undertaken by the LSC highlighting the financial incentives on offer to small businesses for training an apprentice and the benefits that it will bring to a business during the economic downturn. There must also be a guarantee that any direct payments of wage contributions for providing training are paid into the employers account within a month. This has been a considerable cash flow problem for businesses that have had to wait a considerable amount of time for payment. 5 FSB Apprenticeships Survey August 2008-82% of FSB members advocated a rise in Apprenticeships pay (question3) http://www.fsb.org.uk/policy/images/apprenticeships%20survey.pdf 6 FSB Apprenticeships Survey August 2008 - question 4 http://www.fsb.org.uk/policy/images/apprenticeships%20survey.pdf