Small Businesses Reduce Staff due to Red Tape

Over 50% of small businesses admit to either reducing the number of people they employ or even avoid employing more people because of the concern over the increased burden of paperwork, according to a recent survey by Mentor, the advice service from NatWest. Even more concerning is that when firms make the decision to become employers, a third choose to restrict or even reduce the numbers of staff they employ.

Surprisingly, however, over half of the respondents didn’t think that they spent too much time complying with government regulations, although this does vary for those businesses with a turnover of over £500,000, where two thirds felt that the amount of paperwork they had to deal with was too much.

On average, small businesses spend 3.2 hours a month dealing solely with employee related paperwork, with a fifth admitting to spending well over 5 hours on employee regulations. Those firms operating in the hotel and catering sector spend an average of 7 hours dealing with employee related paperwork, compared with only 1.3 hours for those in wholesale.

Small businesses spend an average 13.2 hours a month dealing with all government regulations and paperwork, although this almost doubles for those businesses with over 11 employees, which spend 26 hours a month on compliance related paperwork. The research also shows that the higher the turnover of the business the more time they spend on dealing with government regulations, as those respondents with a turnover of over £500,000 spend at least 22.5 hours a month.

The transport sector reports the largest burden when it comes to regulatory paperwork. An average business spends 29.1 hours a month and 33% admit to spending between 31 and 50 hours a month completing the necessary paperwork.

Taxation, however, is the biggest concern for Britain’s small firms, with 40% saying that they spent the most time dealing with VAT and 25% dealing with PAYE.

Despite the general feeling that the time taken to complete government regulations is about right, 59% of small businesses still think that there is far too much paperwork related to employees, particularly for those with a turnover of over £500,000.

Diane Christie, Head of NatWest Mentor Services, said: "The time that it takes to comply with government regulations is clearly a top priority for small businesses, although many agree that the regulations are necessary. It is concerning however to see that small firms are thinking twice about employing more staff, and have even reduced jobs because of the amount of regulation involved."