So, I was just reading about the Beecroft review (again) and they have completely missed the point.  Yes, its probably a good idea to extend the unfair dismissal period to 2 years.  In some jobs it could take a year or more to really get a rocking performance out of someone and if you were unsure before – well you better get rid of them before the 12 months rather than be stuck with them.  Now you have more time to make a proper assessment and they have more time to shine.   I get that argument – though I don’t necessarily agree with it.  It should be about proper management and output measuring from day one – and if you do that right you never have to worry about unfair dismissal claims.  But that’s another story.

Where Beecroft has it so wrong is believing the reason SME’s (small and mediums size enterprises) won’t hire is to do with fear of getting rid of people.  That is an urban myth.

The real reason SME’s worry about hiring is the cost and the ROI.

Perhaps if you have never worked in the ‘real’ world – where it is all about getting a return on your investment – as opposed to the public sector where it is someone else’s money (mine and yours) and so it doesn’t matter how much of it you spend / waste, then you have a different veiw on this.  But as a small business owner the thing that MOST puts me and many people, like me, off hiring is the COST.  And more specifically employers national insurance – which is a complete and utter rip off stealth tax.

So – any politicians reading please try and imagine you run your own business.  You work 12 – 14 hours a day and don’t stop at weekends, to get your business off the ground.  You take no / little pay – to get your business off the ground.  Eventually you get to a position where you have to decide whether to turn down work or take someone on.  You decide to take someone on.  You have just created wealth for the government – because by hiring someone you have created 32 % of their income which goes straight to the government.  Well, that’s ok – because we all have to contribute.

At this stage however, you are not a rich fat cat business owner.  Far from it.  You are struggling and juggling and hoping that at the end of next month there will be enough money to pay your member of staff and yourself.  Sometimes there isn’t – so guess what – you don’t get paid (your staff member does and the government does – oh you better believe that baby – because you try saying to HMRC – “I am so sorry – I don’t have enough money to buy food for the kids this month” and see if they will let you off paying them.  I think not.

So – as I said – that’s OK.  But then – that’s not it is it?  No.  Most employees don’t even realise that for employing them you are further penalised by having to pay an additional 13.8% of their wage ON TOP, straight to the government.  So if you are thinking of hiring someone at 20k you actually have to factor nearly 23k into your budget.

And what do we get as employers for this money we pay out of our “profits” (which actually means our wages until you get to a certain size).   NOTHING – a BIG FAT ZERO.  We don’t get a pension contribution out of it – because from very soon YOU are going to have to find another few % every month to contribute to each of your employees pensions.  Do we get rates relief – no still have to pay business rates.  We dont even get our flipping bins emptied – have to pay for that too.

Lets look at that in more detail shall we.  So if your small business turns over 40,000 and you have 10k costs, your profit is 30k.  If you then employ someone at 20k – you need to find an extra £1,726 in employers NI to give to the government.  This leaves you a massive £8,273 (less than the minimum wage).  And out of this massive wage – you have to give £1,654 pounds to the government – because it is counted as “profits” even though it is not enough to live on.

Still want to run your own business and hire someone who will take all your profits.

Now this is an extreme – but not uncommon example.  Small business owners often pay themselves less than they pay their staff because business is unpredictable – and some years (like the last 6) are more unpredictable than others.

So – you will have to excuse me getting on my soapbox about employers NI – but if the government REALLY want to encourage business to hire (because that after all is where they get their money from) – then they need to make it much less financially painful for a business to do that.  Perhaps there could be a minimum turnover per head or a minimum profit below which the company does not have to pay the extra ‘get nothing for it’ employers stealth tax otherwise known as employers NI.

They might argue that would cost them too much – but I disagree.  If I don’t hire anyone – YOU politicians don’t get ANY tax and NI from my non existant employee.  Surely it would be better to get the 32% that I, by creating a job – at my own risk – generated for you and forgo the extra 13.8%, then get nothing because I refuse to hire.

That would do far more to encourage economic growth then almost anything I can think of.