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Government study shows that adopting formal employment practices reduces stress and anxiety in small business owners.

Managing employees within a small business is so much easier than a large operation – informal chats, a close-knit team, and none of that tedious red tape to deal with…right?

Not necessarily. While working in a smaller environment can give rise to strong working relationships that smooth the path of the every day grind, a recent study shows that a lack of understanding of the true impact of employment regulations can make small and micro businesses reluctant to implement them – which, in turn, makes employers more anxious about dealing with some aspects of hiring, managing, and letting go of staff.

The study, by the Department for Businesses’ Employment Relations Research, found that while businesses considered employment legislation fair and necessary, there was a significant perception gap amongst small and micro businesses. While the actual impact of regulation was limited, there was a feeling that it was complex, expensive, and potentially damaging to relationships with employees.

On the other hand, employers that adopted formal practices were less anxious about litigation and had a better understanding of their obligations, such as Health and Safety, The Working Time Directive, and Agency Workers Regulations, dismissal, and redundancy regulation.

As anyone who has either run or worked within a small firm will know, these often operate like a family – which many perceive at being at odds with developing formal procedures, feeling instead that working informally maintains better working relationships.

However, this lack of a formal process for dealing with issues (which will inevitably arise at some point in any business) means that disputes are then dealt with reactively, rather than within a pre-established legal framework, which can leave both employers and employees vulnerable.

One of the main areas of reluctance for small and micro businesses was around initiating dismissal procedures, due to concerns over the risk of being taken to a tribunal. However, wider research has shown that small employers who do not follow formal processes when dealing with disputes are more likely to be involved in, and lose, employment tribunals.

The unknown is always daunting, and when it comes to employment regulations its easy to understand why some shy away from them – particularly if you don’t have an internal HR department to take care of it for you. But making sure you understand your legal obligations and have the right processes in place will be a lot less painful, and less complicated, than you expect.

So if you are one of those small businesses that has been putting employment regulations to the back of your mind for too long, now is the time to tackle it head on – it will not only save you time and money in future, but can also help to measure performance, feed into pay scales, and inform disciplinary systems when appropriate, at the same time as protecting the rights of both you and your employees.

It all goes back to the old Scout motto – ‘Be Prepared’.



“There is evidence to suggest that good HR practice and people management in SMEs are key factors in strong business performance and can lead to increased productivity.”

- CIPD people Skills Project 2017


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