The costliest item for most SMEs is their payroll and for many the legal obligation of paying the national living wage is seen as a significant burden, hence the popularity of the zero-hours and self-employed models.
According to the latest ONS (Office for National Statistics) figures the number of zero-hours contracts in use across the UK rose by about 100,000 in 2017 to 1.8 million. That is still below the peak of 2.1 million in May 2015.
Nevertheless, these contracts are clearly still popular with some sections of the work force, particularly students, women and part time workers, as well as SMEs, for their flexibility.
However, in the last six months several court rulings have arguably eroded the benefits to business of using self-employed workers.
The most recent was a Supreme Court rejection of an appeal by Pimlico Plumbers in June 2018, against the decision of an employment tribunal ruling of unfair dismissal. The case involved a self-employed plumbing and heating engineer, Gary Smith, whom Pimlico had dismissed when he tried to reduce his working hours following a heart attack.
As a result of other court cases both DPD and Uber have had to change their employment models to provide worker benefits such as holiday pay, the minimum wage and pension contributions.
What next for businesses using self-employed workers?
Businesses understandably will want to retain the maximum flexibility to be able to adjust worker availability to reflect seasonal peaks and troughs and to keep a tight control over their overheads.
While it is likely that there will always be some workers who will value that flexibility to be able to fit working hours around other responsibilities, such as family or educational commitments, the UK economy is currently in a situation of full employment which makes it harder to both find and retain suitable employees.
Despite the current uncertainties resulting from the UK’s decision to leave the EU, a looming global trade war and an increasing number of workers affected by the many retail store closures that have been a feature of the last few years, there is likely to continue to be a shortage of relatively low-skilled workers due to the reduction in numbers of EU migrant labourers since the 2016 vote to leave the EU.
This is of particular concern to the agricultural sector that needs seasonal workers to pick and pack fresh produce.
Not all of this can be addressed by increased automation, which in itself has significant cash implications at a time when businesses are holding back on investment while there is uncertainty over their prospects for future trading.
If, as looks likely from the court cases, the mood among workers is shifting against being used as disposable labour, businesses will also have to assess the damage to their reputations from sticking to the zero-hours and self-employed models.
Is it time for SMEs to reassess their employment practices and as a consequence their business models?