10 December 2014

A fresh approach to small business recruitment?

As only 3% of self-employed workers hire staff, the RSA is suggesting a fresh approach to encouraging small business recruitment.

Despite a staggering rise in the number of people working for themselves, very few will grow their business enough to recruit staff. The RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce) is suggesting a fresh approach to the government’s measures to encourage small business recruitment.

There has been a 30% increase in the number of people becoming self-employed since 2000, which means that one in every seven workers is now self-employed. However, while the government has introduced measures to make it easier, only 3% of these small businesses will ever hire staff. According to the RSA, if this percentage was even doubled to 6%, it would create an extra 100,000 jobs. Therefore, it has produced a report called Everyday Employers, suggesting a fresh take on the government’s approach.

The report defines three barriers that look at the behavioural drivers and obstacles for recruitment:

  1. Pragmatic – practical barriers such as cash flow, capacity and risks.
  2. Mindset – fears surrounding managing employees that are often based on inaccurate perceptions.
  3. Cognitive biases – tendencies to think in particular ways that aren’t necessarily in our best interests, such as focusing on the day to day running of the business rather than long-term growth.

Pragmatic barriers to small business recruitment

Many small businesses don’t take on staff because of the immediate costs of employing someone, including wages and national insurance and pensions contributions. This plus other obstacles, such as lack of knowledge and experience in managing staff, deter business owners from hiring and expanding. To reduce these barriers, the RSA suggests:

  • Reducing the risk of recruitment by pooling resources, for example setting up collective insurance schemes for groups of small firms.
  • Making it easier to access workers on a flexible basis, e.g. by businesses sharing employees or introducing freelance vouchers, to subsidise the cost of working with freelancers.  
  • Ensuring there are enough potential staff interested in working for small businesses. Colleges and universities could organise small business careers fairs and job centres should help to raise the awareness of positions within local firms.
  • Consolidating government support for small businesses, rather than creating new schemes.

Improving the mindset of small firms

Business owners often think that employing a member of staff is more risky that it actually is. 88% of firms with no workers say the prospect of managing staff is not easy, yet fewer than half of businesses that actually employ staff agree with this. Many business owners may have the confidence to create their own business, but not the right mindset to grow their venture. Here, the RSA is suggesting to

  • Reduce misconceptions with simple, relevant guidance, given at the right time. Encourage professionals such as accountants who come into contact with the self-employed to act as business advisors and information curators.
  • Use of ‘story-telling’ techniques to help small businesses break down their negative perceptions of their own abilities.

Reducing cognitive bias

Many business owners base their decisions on intuition rather than simple logic or reason. Often people become risk averse, focusing on what they could lose by taking on an employee rather than thinking about the gains. Many small companies also fear losing control of their business if they expand and take on staff.

  • Improve financial incentives for hiring, such as providing immediate subsidies rather than asking businesses to claim money back at a later date.
  • Use marketing campaigns that focus on the qualities of employees and how they can support businesses to accomplish their aims.
  • Encouraging small businesses to plan for the future, for example when applying for funding and state how they intend to grow through a ‘growth pledge’.
  • Encouraging small firms to network with the owners of larger companies to encourage them to take on staff.

What would encourage you to hire staff? Tweet us @BizspaceUK