Monthly Archives: October 2011

It’s the economy stupid!

Fear of employment law (which is used to sell employment law insurance) is not the same as the reality of employment law.   Tinkering with rules to alter people’s perceptions doesn’t really tackle the underlying problem of unemployment.

Changing the qualifying period of service?

The change from one to two year’s qualifying service for unfair dismissal claims   It seems  only about 1% of existing claims would have been affected by this change – not a big difference to employers.   Employees who have struggled into new or first time employment have a two-year wait for a full set of employment rights – a very big difference for them.

Is regulation causing unemployment?

The number of staff employed in US small businesses has been declining for years.  Their employment law is “dismiss when you want”.   How is employment law causing this?  There is a longer term trend a play regardless of employment laws themselves.  Similar patterns exist in the UK.

Show me the money

Late payments hit at an all time high.  If you can’t borrow from the bank or get an overdraft you can’t take on regular commitments.

This is how it works.

  • Our entrepreneur gets some new business worth £120,000 a year.  Champagne all round?  
  • Selling at narrow margins to compete –  gross profit is just 20% – or £24,000.  Beer all round?.

Entrepreneur  has to pay their own suppliers on time (or they won’t be re-supplied).  They need to take on a part-time worker as there is no slack in the existing workforce.   Brilliant – a person off the dole queue.

  • Let’s say that costs them £6,000 per year (including NI, to keep the example simple), and that they are not going to have other costs supporting this business – they can use their existing premises and overhead.
  • £18,000 trading profit on their extra turnover of £120,000 – coffee all round? 

Let’s assume their orders from the new client are evenly spaced across the year.  Let’s also assume that the big customer does not pay for 90 days (ask any small business about doing business with a big one!).

Because our client has to pay their supplier on delivery and their worker at the month end,  by the time they get paid their £10k for the month 1 shipment (in month 4), they’ve paid their supplier for four month’s shipments (4 x £8k = £32k) and the costs of 4 months of the new employee (£2k).

So, although the 4 months  profit is £6k, in cash terms they are £24k worse off (£34k total paid out to supplier and part-timer, £10k in from customer).  Tears all round?

Now, we all know the banks aren’t lending, so how do you handle it?  They can’t not pay their supplier, or they have nothing to sell to their customer.   So, at the very least, you can’t take on more staff since you have no way of paying them.

Increasingly businesses are using zero hours contracts, casual workers, and freelancers – anything to find a way to pay people ‘as an when’.  It is the logical thing to do in the circumstances.

I guess it would be too simple to get the big boys to pay up more quickly?  The late payment initiative is simply not working.  Until we fix this problem we are not going to see any real change in the unemployment figures.  

Annabel Kaye is Managing Director of Irenicon Ltd, a specialist employment law consultancy.
Tel: 08452 303050 Fax: 08452 303060
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Filed under employment law, redundancy, unfair dismissal