Bureaucratic maze stifles small businesses

annemarie van gaalThe social insurance system is confusing and expensive for small firms, says entrepreneur Annemarie van Gaal.

Unemployment is down slightly, but with over 633,000 people out of work we are still nudging our old 1980s record. Add to this the enormous number of self-employed and entrepreneurs who, while not unemployed, are struggling to make ends meet and you realise that we are facing a very big problem. The economy is recovering but this is not reflected in the employment figures.

Government policy has concentrated too much on protecting existing jobs and too little on stimulating growth. It has gone too far in its protection of workers: redundancy pay, social insurance rules, bureaucratic procedures and collective labour agreements cover all businesses, whether they employ a thousand workers or ten.

Responsible

In both cases, employers remain responsible for a sick worker for a period of two years. That not only means they have to set in motion a re-integration process and pay the worker’s salary during that time, they are also forced to immerse themselves in hundreds of pages of incomprehensible jargon to find out exactly what is expected of them. And they had better not make any mistakes or they’ll be paying out an extra year’s salary.

And here’s the difference. A big company has a personnel department to navigate the bureaucratic maze. A small entrepreneur has to do it all himself. This is time and energy he can’t put into the running of his business. Every small entrepreneur who has experienced the nightmare that is an unwilling or dishonest worker will never employ anyone again.

We seem to forget that economic growth is propelled by small and medium-sized businesses. Even multinationals such as Philips or ASML started out small. The rules are stifling growth. Small companies can’t grow because they are fearful of hiring people.

Two-tier

Why don’t we devise a two-tier system? Big companies follow the rules imposed by the government and the unions. Smaller businesses, of up to say 20 workers, are exempt from collective labour agreements and will apply a less stringent form of social insurance law. Of course, smaller businesses will still be obliged to pay the minimum wage and social insurance contributions, but that is all.

For them there would be no distinction between long-term contracts or temporary or variable contracts, and no sick pay or previously determined severance pay. Workers who want security can choose to work for a large company, while the more adventurous can opt for a smaller company. This could bring down unemployment and be an incentive for growth at the same time.

Annemarie van Gaal is an entrepreneur and investor.