FSB: hiring first staff member is costly

Friday 31 October 2014

Insight into the costs associated with hiring the first staff member in a small business or limited company has been drawn up by the Federation of Small Businesses (FSB) and the Centre for Economics and Business Research (CEBR).

The report found that the average cost of staff for a small business is £189,600, of which 15.1 per cent does not include wages. The costs include the employer's national insurance contributions, payroll processing and hiring an extra staff member in the event that a worker has to go off sick.

Furthermore, the costs were found to be at their highest in the health and education services sector, at £280,900, and lowest in the accommodation and food services sector, at £117,400.

What's more, it was found that companies who are taking on their first employee face higher non-wage related costs compared to the amount paid in salary than larger companies do. The average employment cost per worker in a business with one owner and one employee is £35,000. Of this, 20 per cent of employment costs go on national insurance contributions and income tax on the owner's salary. Adding to this, the cost of the business owner's time in completing regular administrative tasks is estimated to be around 2.3 per cent of total costs, which is paid out of the owner's salary.

In comparison to this, businesses with between 20 and 49 employees were found to face average costs of £25,100. As the number of employees rises, a greater proportion of total employment costs can be devoted towards employees' wages rather than administrative costs, which FSB suggests may mean firms can become more effective with size.

FSB published this study after its own research discovered that a balance of seven per cent of small businesses in the UK intend to hire more staff over the next quarter.

In order to support this trend, the FSB is lobbying the government to lower the costs associated with doing business so that more firms will be encouraged to take on stuff. This includes those that currently do not have any employees.

Speaking about the results of the research into the costs associated with employment, national chairman for the Federation of Small Businesses John Allan said: "Small businesses have been responsible for many of the jobs created in recent months and this must continue. What this new index shows, is the cost of taking on your first member of staff can be considerably higher than taking on your twentieth. The future growth of the UK economy depends on more entrepreneurs taking the leap to becoming employers. This means Government has to redouble its efforts to make it cheaper to hire staff."

Director of CEBR Charles Davis pointed out the connection between this research and the recent findings that there has been a huge surge in self employment. He asked this question: "Could the Government do more to make it easier for the plethora of one-man bands and micro businesses to take on more employees?"

By Victoria McDonnell

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