National Insurance contributions (the bit employers have to pay) is set to increase by 1% in April 2011. This isn’t even the bad news. So aside from now paying 20% VAT since last month, and looking forward to having to find an extra 1% on staff’s payroll – there is new legislation quietly being introduced that all small businesses should be aware of – because it’s not only going to increase your costs of payroll… but there’ll be an additional administrative burden to account for too.
Have you figured out where you’ll find the extra 1% for the employers National Insurance for the next payroll year 2011-2012? And then as they introduce the pensions contribution, as an employer, you’ll be putting in up to 4% - add that to the 1% increased NI and this is the increased, very real cost of employing people over the next few years.
How are you planning to meet this extra burden? Shed staff ? Increase your prices? Reduce your costs ?
All businesses with employees will have to register with a pensions body, to ‘prove’ that they’re adhering to legislation, as well as provide a pension for the staff and ensure that all payments are made monthly into this pension pot. Now, I don’t know about you – but with cashflow being tight / slow with some businesses, they’re now going to have to find CASH each month to pay into the pensions pot first… before anything else ie reinvesting into the business, paying the office rent etc,.
The cost of running a business and employing people is increasing. Despite the downturn – the government are looking for more small businesses, to take up the burden of ensuring people are in paid employment. The amount of sleepless nights, headache and stress running a small business can bring you – is enough to make some ill, and others just close the shop to go and do something else. 4 Fortunately, our employment lawyer warned us about the planned increases a few years ago so it’s not come as a huge shock to us, and we’ve been working up to these changes, but there will be businesses out there caught with their trousers down.
WHAT CAN YOU DO
There are a few things to think about when trying to meet this additional cost. You could:
1. Pass the cost on in full to all customers. Increase your sales price and hope for the best.
2. Pass the cost on in full to all new customers, and partially to existing customers.
3. Don’t give a pay rise this year (or for the next few years), and reduce other costs to absorb this increase.
4. Reduce your employed / salaried staff and use more subcontractors or use agency staff so that you are only using labour that you need, as and when needed.
PLAN YOUR CASHFLOW
In 2011 and ongoing, things are set to get tougher, and you really have to plan your finances in advance if you are to stay ahead of the game. You also need to look at your business structure and questions whether its right, for the oncoming changes.
RETHINK YOUR MODEL
We’re living longer. The 65 years compulsory retirement age is being phased out – so your workforce, their dependency on your business and the demographics is certainly set to change. The book ‘The 21st Century Business Model’ outlines the traits which a successful business will have, to survive in these changing, aging times. See: www.business21C.net
Lisa Newton is the MD of Boogles Ltd. If you are looking for a bookkeeper, or help with costing or payroll, please visit: www.booglesltd.com