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Regulation breaks would encourage sole traders to employ

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Sole traders would be more prepared to take on an employee if the regulations surrounding employment were eased, a new study has claimed.

According to the British Chambers of Commerce (BCC), one-person businesses would be more inclined to offer a job if the rules surrounding the recruitment and management of workers were simplified.

A cut in national Insurance contributions would also be an incentive, the poll found.

The BCC survey took in some 1,270 sole traders and identified a number of areas where regulation was seen as a deterrence to employment.

Legislation on new pension requirements, dismissal rules and sickness absence were cited as the top three barriers to sole traders who were thinking of taking on their first staff member.

Nearly one in three sole traders (32 per cent) pointed to upcoming pension requirements as a major obstacle to recruitment. The changes outlined in the Pensions Act 2008, with which all businesses must begin complying between 2012 and 2015, mean that employers will have to pay a 3 per cent minimum pension contribution towards the retirement savings of staff.

For many owner-managers, the BCC said, this will bring with it indirect costs in setting up pension schemes, and changes to payroll systems.

What’s more, a quarter (27 per cent) of respondents expressed concerns over the dismissal process, suggesting 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.

A similar proportion of those questioned worried about the impacts of having to deal with sickness absence.

The report also found that a half of sole traders would be incentivised to recruit employees if there was a reduced or special rate of employer NICs.

There is a desire to grow businesses among sole traders, the report indicated, but it tends to fall away the longer the business has been up and running.

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.

However, newer business owners have greater ambitions to create jobs. Over 45 per cent of sole traders operating for less than six months had ambitions to increase their staffing levels by half. This dropped to a fifth among businesses that have been operating for more than three years.

Commenting on the report, Dr Adam Marshall, director of policy at the BCC, argued that, in the UK, the proportion of enterprises with no employees has increased each year since 2004.

Dr Marshall continued: “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.”

The BCC picked up on the fact that new entrepreneurs tend to be more ambitious, and said that their enthusiasm must be harnessed early on.

Dr Marshall concluded: “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 NICs 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.”