The findings of Penningtons' recent Employment Legislation Survey reveal an alarming trend in employment practice. Over the last few years, we have seen a massive growth in the amount of legislation affecting the workplace. Many of the new regulations have been heralded by commentators as providing a significant improvement to the armoury of personal rights afforded to workers. But at what cost?
There is a growing feeling of discontent among employers, both large and small, which are finding it increasingly difficult to keep up with the changes. At a time when businesses across Europe are fighting against the effects of a potential worldwide recession, the financial implications of complying with new regulations only serve to erode still further tightening profit margins. It was against this background that earlier this year the Penningtons employment team carried out a survey to examine the effect on businesses of the current volume of employment legislation. The Penningtons Employment Legislation Survey was sent to a sample of UK businesses with turnovers in excess of £1m. The results suggest that some businesses are tackling the problem by cutting down on staff.
The administrative burden
The findings identify that many businesses clearly regard the amount of employment legislation as increasingly burdensome, not least from the need to administer and comply with the volume of legislation being introduced.
This has been felt most keenly by those businesses where there is no full-time or dedicated personnel manager. Invariably, in the absence of such a personnel specialist, responsibility falls on the managing director or another senior director. These individuals feel torn between the need to manage and develop their business, and the need to administer and implement what are seen as often laborious and time-consuming procedures demanded by the Government. Many feel that these measures provide little benefit in assisting businesses to remain competitive and prosperous. Indeed, as one managing director of a business with a turnover of less than £2m commented: “I'm concerned that the bureaucratic workload continues to increase and Government departments are passing their responsibilities on to employers. Regrettably, employment and associated costs continue to rise dramatically, and this position is totally unacceptable if we're to remain competitive and continue in business.”
Consequently, the administration of employment matters may not receive the attention it deserves.
Where is the pressure greatest?
More than two-thirds of the respondents to the survey feel that the level of employment legislation is “far too high” in the UK. Much of this is due to the Labour Government introducing employment legislation in the last four years which had been delayed by the Tories. Also, the UK has been playing catch up with other European countries by introducing legislation to ensure it is on a more comparable footing with other EU countries.
The survey shows that the administration of the Working Time Regulations (SI 1998, No 1,833) is considered not only the most onerous, but also the most time-consuming and expensive of the recent legislative measures. While amendments were subsequently made to the regulations to relieve some of the pressures caused by unnecessary tasks such as record keeping requirements for those opted out of the 48-hour week (see SI 1999, No 3,372), the recent amendment removing the 13-week qualifying period for annual leave (SI 2001, No 3,256) will only exacerbate the problem.
Generally, as one might expect, larger businesses are able to provide a better range of benefits to their workers than smaller companies. Company cars, private medical insurance and cash bonuses remain the most common benefits. Sixty-eight per cent of respondents provide company cars to directors, for example, but there is a noticeable fall in the percentage of company cars offered to middle managers. While this may still be perceived as a benefit associated with rank and status within the business, it has nevertheless become less and less attractive to have a company car, due to the increasingly onerous tax implications for users. It is therefore not surprising to see a significant percentage of businesses offering a car allowance as an alternative.
Although the overall use of share options remains small, an analysis by business sector reveals marked differences, with those in the computer/IT sector being the most likely to offer such a benefit. The use of share options as a benefit in those sectors where it is difficult to recruit and retain staff is a trend that is likely to continue, particularly as a far wider range of share schemes attracting tax relief is now available to small companies.
The survey also reveals a significant level of dissatisfaction with the employment tribunal process. Twenty-eight per cent of respondents confirm that they have been involved in a tribunal in the last five years; of those, 75 per cent of respondents had legal representation. However, while many businesses will retain a legal adviser to assist with their defence, it is also clear that many businesses would prefer to settle a dispute before it gets to a tribunal. Respondents confirm that their main objective is to reduce the need to allocate expensive management time on non-productive issues and get back to the real business of running a company.
Many employers believe that the system is not only cumbersome, consuming vast amounts of management time, but is also heavily biased in favour of employees, even where they have dubious claims. As one manager expressed it: “The cost of defending at tribunal falls on the employer, regardless of a win or loss. Employees know this, so settlement before the tribunal is often sought. Regardless of the rights and wrongs of the case, it's cheaper to settle.”
The Government certainly recognises the growing dissatisfaction with the tribunal system, and has made some effort towards an overhaul. The new regulations to revise the constitution and rules of procedure for employment tribunals (SI 2001, No 1,171), which came into force in July, may temper some of this criticism; the new Acas arbitration scheme has now been in operation for some six months, and only last month the Government announced further revisions to the tribunal process as part of the new Employment Bill. Inevitably, it will take time for these changes to be felt in the boardroom, but it is hoped that they will go some way towards redressing the perceived imbalance felt by employers.
A recurring theme throughout the survey is that employment legislation, designed to protect the rights of the worker, is impacting on the bottom line to such an extent that businesses are reducing their needs for additional staff. In the past, businesses got round the problems by avoiding the employment relationship. Nowadays, with many rights afforded to 'workers' rather than the narrower definition of 'employees', the net is cast much wider and the holes much narrower. The long-term concern, therefore, must be that this legislation is in fact hindering the prospects of workers finding jobs in the workplace.
Jon Heuvel, a partner at Penningtons and a member of the firm's employment group, is co-author of the Penningtons Employment Legislation Survey