SMEs struggle as employment costs rise

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Date: 23 July 2019

A group of employees discussing a projectWorkplace pensions, the national living wage, national insurance contributions and the apprenticeship levy are creating a cost burden that is difficult for many small firms to cope with, according to new research.

Nearly three-quarters (72%) of firms have said that the cost burden of employment has increased compared to five years ago, according to a survey by the British Chambers of Commerce (BCC) and Indeed.

The poll of over 900 firms from across the country has found that a third (33%) of SMEs say the cost burden of employment has increased significantly.

Although the firms polled said they support the principle of policies such as pensions auto-enrolment, the national living wage and the apprenticeship levy, respondents said they are struggling to absorb the cumulative costs, which are impacting on their margins and ability to invest and scale up. Many firms are having to find savings elsewhere in order to cover employment costs and other upfront costs, such as business rates.

"The cumulative cost of employment has become unsustainable and the government cannot expect businesses to carry on shouldering this ever-increasing burden," said Jane Gratton, BCC head of people policy.

"Firms are creaking under the combined strain of wage increases, employment taxes, skills levies and a myriad of administrative and reporting responsibilities, and the costs have not been offset elsewhere."

Gratton added: "At a time of significant change and uncertainty in the economy, firms should be supported to invest in people development and innovation. Instead, this rising cost burden is damaging competitiveness and we risk pricing people out of jobs and driving firms out of business. Many businesses feel there is no recognition from government of the difficulty of juggling all these obligations while trying to operate and make a profit.

Commenting on the findings, Pawel Adrjan, UK economist at Indeed, said: "A business can only be as successful as the workforce it hires and trains. The fear is that the perception of a rising cost burden will force employers to batten down the hatches and cut investment not only in product development and equipment but in people and training, too."

Written by Rachel Miller.

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