8 in 10 small firms shun zero-hours contracts while employment costs surge

The overwhelming majority of UK small businesses are not using zero-hours contracts, and more than half were paying all staff the new NLW before it was introduced in April, according to the latest findings from the Federation of Small Businesses (FSB).

  • Small employers steer clear of hiring staff on non-guaranteed hours as Federation of Small Businesses (FSB) calls for rise in apprenticeship pay and return of work experience
  • Most small firms already paid all staff at least £7.83 an hour prior to National Living Wage (NLW) rise in April
  • A third of those impacted by higher NLW reducing investment with retailers in particular feeling the squeeze

The vast majority (84%) of small firms do not hire workers on non-guaranteed hours contracts. Six in ten (60%) were paying every employee at least £7.83 an hour before this became the NLW rate for over 25s in April 2018.

FSB National Chairman Mike Cherry said:

“Very few of our members use zero-hours contracts. Where they do, they’re creating arrangements that work for both employer and employee alike.

“Small firms often play host to the kinds of supportive, flexible and family-centred working environments than can be found lacking in big corporates. What today’s findings show, once again, is that they also reward staff fairly.”

Amid a plunge in the number of apprenticeship starts across the UK, FSB is calling on the Government to raise the Apprenticeship Minimum Wage (AMW) rate. Apprentices under the age of 19 are currently paid £3.70 an hour.

With 70 per cent of small firms saying school leavers are ill-prepared for the workplace, FSB is also urging policymakers to bring back compulsory work experience for students under the age of 16.

Mike Cherry continued:

“Young people taking on apprenticeships should not be paid so little. If we really want to create parity of esteem between academic and vocational routes into work, then paying apprentices £25 a day is not helpful. Equally, any Government which prides itself on backing free enterprise should look at bringing work experience back into every school.

“The Apprenticeship Levy is not working as intended. More should be done to ensure levy funding can be shared across supply chains. That means increasing the current 10% cap on transfers. We also need to see the exemption for training and assessment costs – which currently only applies to those with under 50 employees – extended to all small firms.”

Among small businesses that have seen wage bills rise as the result of April’s NLW increase, seven in ten (70%) are reducing profitability or absorbing costs. Four in ten (41%) are increasing prices and one in three (30%) are curtailing investment plans.

The impact of a higher NLW is felt particularly acutely in certain sectors. A significant majority of both small retailers (60%) and accommodation & food services firms (71%) report that the new rate is putting upward pressure on wages.

The rise in the NLW this year coincided with a hike in employer auto-enrolment contributions, increases in business rates and a cut to the Dividend Allowance.

Mike Cherry added:

“The vast majority of small business owners absorb rising wage bills by taking less for themselves. Ultimately though, high employment costs dent the ability to invest in productivity-enhancing tech, innovation and training.

“Small firms operating in labour-intensive industries, especially retailers and childcare providers, are hit particularly hard by rising wages. Maintaining the Employment Allowance and delivering on the promise of National Insurance holidays for small firms that employ those furthest from work need to be priorities for the Chancellor at the Autumn Budget.

“Our high streets are up against a perfect storm of surging business rates, high inflation and rising employment costs. Childcare providers are also struggling to keep their heads above water. The least the Government can do is follow Scotland’s lead by making childcare providers in England exempt from the regressive business rates tax.”


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