Rising consultants’ fees hit west midlands employers with a 4.7% increase in annual compliance costs

With annual compliance costs rising by over £70 million, small employers in the region are advised to rethink their own procedures and shop around for more affordable business services.

Compliance with new regulations, including the flexible working practices, will cost the 99,000 small and medium-sized employers in the region a massive £71 million – or around £725 per company. This takes the estimated cost of compliance for employers in the west midlands up to £1.6 billion, equivalent to £16,000 per firm.

Sectoral figures for additional costs (in £m) to employers in the west midlands caused by regulation over the last 12 months are shown below:

Retailers were least affected by the changes with an increase of £445 on the cost of compliance whereas manufacturers saw an increase of almost £1,044 and health, social and care providers saw an increase of £925. The amount spent on external providers was, however, even more pronounced with retailers spending £155 more on external support, far lower than manufacturers (£645) and those in health, social and care sectors (£622).

Overall 54% of the cost of compliance was down to an increase in money spent externally, a direct cost to the business. In terms of the other industry sectors, construction firms have seen the cost of compliance rise by £814 (£475 on external consultants), other distributive trades have seen an increase of around £490 (£175 on external consultants) and the service sector saw a general increase of around £730 (£394 on external consultants).

As most of the additional costs of compliance are in effect payroll costs (flexible working, real time information and preparation for auto enrolment) a large proportion of the compliance costs incurred by businesses are likely to continue for the foreseeable future. In total 77% of the additional cost in compliance over the last 12 months will reoccur over the next 12.

The Forum’s Chief Executive, Phil Orford MBE, commented: “SMEs in the West Midlands continue to struggle to control costs and remain frustrated by the amount of red tape they have to negotiate every day.

“Understanding what is required to be compliant is a big issue for this sector and companies need to be kept up to date with major legislative changes.

“The increasing cost of fines for non-compliance on everything from health and safety to unfair dismissal has made the ongoing support we provide to our members through our helpline and guides all the more important. We keep our members regularly updated to ensure that they are aware of what legislation they need to know about and what regulations, such as the 2013 Defamation Act, are unlikely to have a great impact.”

Mr Orford continued. “It is vital that regulators communicate major changes to compliance effectively – even improvements to regulations add cost to the bottom line of good, compliant businesses as they make the changes. The problem with a lot of the regulatory environment is that businesses are not able to take advantage of deregulatory changes because the time to make the assessment and trust in enforcement agencies is simply not there.”

In addition to its legal expenses insurance, the Forum continues to help small businesses negotiate employment law pitfalls via its comprehensive Employment Guide. The 2015 guide is to be published in October and updates will be provided to members on a quarterly basis.

The companion volume the Forum’s Health and Safety Guide is published every April and provides comprehensive guidance on health and safety for all businesses and also includes sector-specific guidance for the warehousing, food hygiene and construction sectors among others.