Small business: Red tape casts a long shadow

WHEN Julie Diver started her graphic design agency 39steps in Edinburgh eight years ago, she never thought she would have to worry about shopping around for workplace pension schemes.

The 31-year-old business owner, who has four employees designing web, magazine and publicity material for organisations such as the Scottish SPCA, is concerned about how forthcoming reforms forcing firms of all sizes to enrol staff in a pension scheme will affect her financial flexibility when they are phased in from 2012.

The reforms are just one of 16 employment regulations due to come into force between now and April 2005. According to a report from the British Chambers of Commerce (BCC) earlier this week, such "red tape" will collectively cost UK businesses 23 billion over the next four years at a time when companies should be encouraged to create jobs and boost growth. In Scotland, the cost for firms is estimated at 1.57bn which, although less than other parts of the UK, will hit the private sector just as public-sector cuts begin to bite.

The backlash against bureaucracy continued when the National Audit Office warned on Thursday that entrepreneurs currently have to navigate 60 separate regulations, updated at least once a week, at a current cost of around 13 billion a year. Business groups warns that the growing red tape mountain will put off SMEs from taking on staff.

Diver employs an office manager three days a week to deal with red tape and employment issues such as childcare vouchers as well as general admin for her business. She outsources all of her payroll and tax matters to an accountant.

At the moment, the bureaucratic burden around employing a small team is just about manageable, she says, although she admits she would struggle to keep on top of the situation without her office manager, Emma. When a particular issue arises she prefers to talk it through with staff and she calls on the Federation of Small Businesses Scotland (FSB) for extra support when she requires it.

But Diver doesn't want to see the burden become any greater and the pension reforms are a particular source of concern.

"I wouldn't want Emma to be doing more of it than she needs to," Diver says. "I want her to be doing stuff that is actually helping the company generate money rather than having to spend it."

A firm the size of 39steps, which turns over about 250,000 a year, is not expected to comply with pensions changes until about 2016 but it's already weighing on Diver's mind. She says it will limit her ability to award staff pay rises.

"Wages are going to go down as a result if the directive dictates there has to be a minimum contribution of X per cent. You won't be able to give employees wage rises and bonuses because you can't," she says. "There's an awful lot of responsibility on the employer to try to find the right pension scheme for the employee and I don't feel qualified to do that - apart from the time it is going to take to sort all of that stuff. We already pay National Insurance so I don't understand why this would need to come into play.

"Apart from that, I believe the responsibility has to be on the employees to decide their own financial future. Instead of having that 3 per cent that I might contribute to their pension, they might prefer to have that in their wage packet or something else that they feel is going to give them more return.

"We still have a lot of time to plan [for the pensions changes] but I really don't agree with it. We would have to swallow those extra costs somehow."

Aside from pensions reform, the mostly costly piece of legislation due for enforcement over the next four years is the right to request time off to train, which will add a 175m annual recurring cost to British business.

Diver reminds that many of the forthcoming regulations - including the right to request flexible working - aren't mandatory. "At the end of the day they are the right to request but not the right to have it," she says.

She intends to take a common sense approach to such regulations, sit down with employees and talk about how, for example, extra training would benefit them and her business. She says SMEs are at an advantage in this respect - the staff is so small that businessowners can have rational, adult conversations with their employees without the need to resort to lots of form-filling and other HR processes.

As she looks over the list of forthcoming legislation, Diver hopes the government will take a similar common sense approach to future regulation. While it's helpful to offer guidelines, policymakers should put more trust in employers, and allow them to get on with the business of looking after their staff and growing their businesses.

Asked what her message to government bureaucrats would be, Diver replies: "Give responsibility to the employers. Give them the credit to make the decisions with the staff they have got especially if you are in a small company. OK, there are some not so good bosses out there but the majority are decent people with a decent team. A lot of these things [regulations] should be guidelines but a lot should be left to the employer."