Majority of small firms shun zero hour contracts

The overwhelming majority of small firms in the UK are not using zero-hours contracts.

This was among findings of a survey from the Federation of Small Businesses (FSB).

It also discovered that more half of small firms were paying all staff the new National Living Wage (NLW) before it was introduced in April.

Nearly 85% of small firms do not hire workers on non-guaranteed hours contracts.

Six in 10 were paying every employee at least £7.83 an hour before this became the NLW rate for over-25s in April.

Critics of zero-hours contracts have described them as basically a post-modern form of slavery - employment without any guarantees of work, but with lots of responsibilities for the individual and almost none at all for the employer.

But 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.”

Among small businesses that have seen wage bills rise as the result of April’s NLW increase, 70% are reducing profitability or absorbing costs. Four in 10 are increasing prices and 30% are curtailing investment plans.

The impact of a higher NLW is being 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.

Mr 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.

“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 UK Government can do is follow Scotland’s lead by making childcare providers in England exempt from the regressive business rates tax.”