Supplementary memorandum by the Federation
of Small Businesses
The FSB's Employment Survey 2006
Of the total sample, 65 per cent of the businesses
had employees, whilst 35 per cent did not. Of those businesses
without employees, the three main reasons that prevented them
from employing, the most significant culprits were as follows:
1. Employees considered too great a business
risk at 36 per cent.
2. The complexity of employment legislation
at 32 per cent.
3. The overall burden of red tape and regulations
at 31 per cent.
4. The volume of employment legislation at
25 per cent.
NB: As each respondent could choose three answers
the results add up to more than 100 per cent. The individual per
centages refer to the proportion of the sample who chose the stated
area of regulation as one of the three that they considered to
be particularly burdensome.
Time spent on administration including, importantly,
the implementation of and compliance with regulations, is unproductive
time. Most small business owners are themselves participating
in the supply of goods and services to customers. Most are also
their own sales managers. Time spent on administration is time
deducted from these activities. Time is money and money is required
for investment. Lack of money holds productivity back. The FSB
has no statistical evidence to support its proposition as measurement
of productivity across such a wide range of businesses poses exceptional
problems. Our proposition is therefore based on principle and
on anecdotal evidence.
The FSB are not opposed to maternity leave and
flexibility for employees per se. The FSB recognises and supports
the principle of wellbeing for workers and employees. However,
the FSB has concerns about the sheer volume of employment legislation
and the recent increases in areas such as parental leave, annual
leave and the National Minimum Wage. The cumulative impact and
cost of such regulations could ultimately deter owners of small
businesses from creating employment opportunities as the supporting
statistics for question 64 illustrate.
The worst case scenario is that the most vulnerable
micro businesses could be forced out of business.
The FSB Employment Policy Committee intend on
producing a list of exemptions on employment legislation, both
on current legal exemptions and exemptions that the FSB believe
should be implemented. However, this is ongoing work which will
take more time and the FSB apologises for the fact that no such
list will be available in the immediate future.
Education and Skills
Much training in small businesses takes place
informally. For example, a manager who has just been on a training
course may return and pass the knowledge he/she has gained back
to the staff. The FSB believe that such informal training should
be acknowledged. The FSB also consider that there is very little
small business representation on Sector Skills Councils and that
it is in the interest of the labour market as a whole for there
to be more input at a small business level.
The fact that many small businesses employ workers
from new Member States is partly due to the shortage of skills
in the UK.
Question Would you describe any issues relating
to the current UK legal definition of self-employment and employment
which affect small businesses. What advantages (or disadvantages)
might there be in the Commission seeking a clarification of self-employment/employee
status across the EU?
We bear in mind that employees have great economic
advantages over the self-employed in terms of rights and security.
Notwithstanding this, a Commission survey shows that a majority
of workers would like to be self-employed. Also that the Government
Actuary has recently confirmed that national insurance contributions
paid by the self-employed are commensurate with those paid by
the employed having regard to benefits received. Also, that the
tax authorities much prefer payment through the PAYE system to
self-assessment for administrative reasons. Classification of
worker between the employed and the self-employed is an important
issue both from the concern of the worker and the public interest.
In our view, there is only one question. Is
the work to be performed subject to a contract for services or
a contract of service? The same question can be rephrased: is
the contract a commercial contract or an employment contract?
In the UK, this question is subject to the common law. The Judges
have solved it by application of various criteria. These include:
Does the worker supply his own skill
Does he/she supply his own tools
Is he/she free to supply services
to other contractors or is he required to be dedicated to a single
Is he subject to supervision not
only for his outcomes but also the way in which he achieves them?
Is he in business on his own account?
Has he invested money in that business?
How have the parties themselves expressed
What is the mutuality of obligation?
The common law is flexible and moves with the
times by progressing from precedent to precedent.
It would be easy for the EU to incorporate this
question into an EU definition of self-employment. But we oppose
such a step. The question would then be moved from one for the
national Courts to one for the European Court of Justice. That
august body would start again and all our jurisprudence would
be lost. The result could be mayhem. We are not willing to risk
taking that road.
We consider that though our existing jurisprudence
leaves some uncertainty in borderline cases, it presents a definite
answer in the overwhelming majority of cases.
The problems in the UK are not in the substantive
law but in the procedure. There has been a narrowing in the classification
of self-employment by the tax authorities. There have been introduced
acrimonious regulations to this effect in the construction industry,
particularly pertaining to craftsmen. More recently there has
been an administrative challenge to one-man computer consultants,
who are "called in" by larger companies to advise and
administer their computer needs when required. Most of these have
now found it necessary to incorporate. Change of status has been
accompanied by debilitating uncertainty.
To deal with this problem, we supported the
Bill introduced by Mark Prisk MP ordered to be brought in on 9/1/2002.
In a nutshell, it provided that a worker claiming to be self-employed
should make a declaration to that effect when filing his tax return.
The Revenue would then have an opportunity to challenge that declaration
in a simple procedure before a Tribunal within a limited time
and bearing the burden of proof. The Bill failed through want
of time but its policy is one we continue to support.
In most other Member States, the insurance provisions
dominate. In France, the Loi Madeleine, although quite
complex, enables a worker to be self-employed provided he joins
one of several autonomous insurance societies to ensure he receives
and pays for comparable benefits of an employee. In Spain, a Bill
to define the position of the self-employed is, we understand,
before Parliament at present. It also is dominated by the insurance
question, but has run into deep controversy especially a provision
for a new status called "the dependent self-employed."
We understand that in the new Member States the acquisition of
self-employed status is easy.
In all, we consider that the principle of subsidiarity
applies to this problem. The Commission should leave well alone.
Question How do you see the way forward in
relation to the implementation of the Working Time Directive?
What is your view of how minimum requirements for working time
could usefully be modified?
Our view has always been and continues to be
that an attempt to impose maximum hours over such a wide range
of work, workers, and countries, could not be proportionate and
would fail. We have been pleased to support the DTI in its policy
of retaining the opt-out by agreement between the employer and
the employee. Member States have found ways to mitigate the effects
of the Directive. Some have classified most of the management
as "autonomous workers" (for example France). Some have
made extravagant use of collective agreements (for example Luxembourg,
where the hotel and restaurant industry has opted out by collective
agreement). Some have accepted that a single worker may have two
employment contracts with the same employer, giving double the
amount of working time (new Member States). In the UK we have
the individual op-out. The Council is in stalemate.
Our preferred course is the abandonment of any
across-the-board restriction. This being apparently impracticable
by reason of a blocking majority, we propose two amendments.
First, that on-call time should only be treated
as working time if the worker is in fact called, and for the hours
so worked. This is urgent for hospital doctors, where the law
of unintended consequences has actually damaged patients who can
no longer get 24-hour cover. But it has also damaged other 24-hour
services - locksmiths who offer a 24-hour service to protect customers
who have locked themselves out of their home, or suffered a night-time
burglary; rural taxi firms who offer emergency services at all
hours; and of course, care homes.
Secondly, to clarify that hours need not be
recorded for employees who are not paid by the hour and who have
opted out. The UK regulations to this effect have been challenged
by the EU Commission, but such paperwork is a useless burden.
1 May 2007