Issues facing small companies and their employees

Small companies are an important part of the UK economy. It is estimated that there are 4.8 million small and medium-sized companies in the UK, and that they account for 60% of all private sector jobs. However, small companies who employ between one and fifty employees have been shedding jobs recently, rather than creating new employment. The issues facing small companies, exacerbated by the economic downturn, have consequences for employers and employees.

The loss of jobs in the small business sector has occurred despite several tax and deregulation initiatives from the Coalition Government, designed to help small companies have a more flexible approach to hiring new employees. For example, a temporary exemption to paying national insurance was introduced for start-up small enterprises that employed up to 10 people. However, only a few businesses took advantage of this offer and small companies often mention that it is too expensive to hire new employees because of insurance costs, and the cost of implementing health and safety regulations.

Traditionally, small companies are more likely to hire cheaper long-term unemployed and low-skilled workers and working for a small company has been seen by such workers as a bridge between unemployment and job advancement, through the experience gained. Women and older workers also make up a larger proportion of employees in smaller firms, and while this may reflect a more flexible approach to working arrangements, such employees may also be lower paid. However, if deregulation continues, a two-tier employment system could emerge that would be controversial, because it might mean that more vulnerable employees have less legal protection.

Further, one set of small companies thriving at present do not employ unskilled workers. These are the new wave of internet entrepreneur firms that use highly skilled employees, particularly based in London. However, several professional bodies associated with business have noted that small companies find young Britons lack the skills that workers from overseas display. Indeed, the employment of skilled workers from overseas has reached record levels.

In autumn 2011, the government announced that it is considering altering some current employment laws; particularly to help small companies with fewer than ten employees.