Select Committee on European Union Minutes of Evidence

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 and judgment?

    —  Does he/she supply his own tools and equipment?

    —  Is he/she free to supply services to other contractors or is he required to be dedicated to a single contractor?

    —  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 their relationship?

    —  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

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