2.5.1 Impact of legislation on business

Why the government passes business laws

1. Protecting employees: employment law and health and safety law set minimum standards for pay, fair treatment and working conditions that no employer is allowed to fall below.
2. Protecting consumers: consumer law gives buyers rights over how a product is described and over what happens when it turns out to be faulty, so a seller cannot simply keep the money.
3. Protecting the public: rules on safe premises, noise and waste protect people who are neither staff nor customers, such as households living near a factory or pedestrians passing a building site.
4. Obeying the law is compulsory, not a choice, so a business cannot decide that compliance is too expensive and opt out.
   1. The same rules bind Tesco and a single independent shop, so competition between them stays fair.

The effects of legislation on a business

1. Higher wage costs: a legal minimum hourly rate raises the wage bill of any business employing large numbers of low-paid staff, and the rate rises again most years.
2. Spending on equipment and premises: safety law means paying for machine guards, protective clothing, fire equipment and repairs that an owner might otherwise put off.
3. Training needs: staff have to be taught safe lifting, safe use of machinery and customers' refund rights, and managers have to be taught how to interview and promote fairly.
   1. Training time is paid time, so the business carries the trainer's fee and loses output while staff are away from the job.
4. Changes to recruitment: adverts, shortlisting and interviews all have to be free of discrimination, so many firms ask every candidate the same set questions and write down why the successful one was chosen.
5. More record keeping: contracts of employment, hours worked, pay rates, risk assessments and accident reports all have to be recorded and kept, which is somebody's paid time.

The benefits of providing a safe working environment

1. Fewer accidents and less absence: a safe workplace means fewer injuries, so fewer days are lost and output keeps flowing instead of stopping while cover is arranged.
2. Lower insurance and fewer claims: insurers charge lower premiums to a workplace with a clean accident record, and there are no compensation claims to settle.
3. Better motivation and lower staff turnover: workers who can see that they are protected feel valued, so more of them stay and the business spends less on recruiting and training replacements.
4. A record that wins work: large customers such as the NHS and JCB check a supplier's safety record before awarding a contract, so good practice brings in orders.

The consequences of failing to follow legislation

1. Fines: a court or a regulator can fine the business, and for a serious safety breach the fine for a large firm can run into millions of pounds.
2. Compensation: an injured worker, or a customer sold goods that were not as described, can claim compensation, which the business pays on top of any fine.
3. Prosecution: owners and managers can be taken to court personally, and the most serious cases end in a prison sentence.
4. Being stopped or shut down: an inspector can order dangerous work to stop, close premises such as a restaurant kitchen, or withdraw a licence, so the business earns nothing until it puts things right.
5. Lost reputation: news of an unsafe factory, a discrimination case or a misleading advert drives customers away and makes good staff harder to recruit.

2.5.2 Employment law

The national minimum wage and national living wage

1. The rate is set by the government and reviewed every year, so a business has to budget for an increase each April.
2. Older workers must be paid the higher national living wage rate, while younger workers and apprentices have their own lower legal minimums.
3. Because it is a rate per hour, the total cost to the employer depends on hours worked as well as on the rate itself.
4. Every employer is covered whatever its size, and each one must keep pay records proving that each worker received at least the legal rate.

How wage laws affect the business

1. A higher wage bill: the effect is largest in labour-intensive businesses, where wages are the biggest single cost and most of the team is paid close to the minimum.
   1. Supervisors and experienced staff usually expect to stay above the minimum, so a rise pushes pay up further along the scale as well.
2. Ways of covering the cost: a business can raise prices, cut hours and overtime, employ fewer staff, or invest in equipment such as the self-service tills now standard at Tesco.
   1. Cutting hours leaves the remaining team stretched, so service can get worse at the same moment prices go up.
3. Better motivation: staff who feel fairly paid tend to work harder and treat customers better, which supports sales.
4. Lower staff turnover: fewer people leave, so the business spends less on advertising jobs, interviewing and training replacements, and keeps more experienced staff.
5. Underpaying is expensive. HMRC can order the employer to repay everything it owes, charge a penalty on top and publish the firm's name, which damages its reputation with customers and future recruits.

The Equality Act 2010

1. It covers the whole working relationship: job adverts, interviews, pay, promotion, training, discipline and dismissal.
2. Men and women doing the same job must be paid equally, so a business cannot justify a lower rate for one sex.
3. An employer must make reasonable adjustments for disabled workers, such as adapted equipment, a ground-floor workstation or altered hours.
4. Customers are protected as well, so a shop or restaurant cannot refuse to serve someone because of their race, religion or disability.

How the Equality Act affects the business

1. Fair recruitment procedures: adverts have to be checked for wording that would put a group off, every candidate is asked the same questions, and the reason for choosing the successful one is written down.
2. Training: interviewers and supervisors need training on what counts as discrimination and on how to deal with a complaint from a member of staff.
3. Costs: training, workplace adjustments, extra record keeping and management time all have to be paid for out of profit.
4. Benefits: hiring from the widest possible pool brings in better recruits, and a reputation as a fair employer improves morale, retention and how customers see the business.
5. Consequences of a breach: a worker or applicant can take the business to an employment tribunal, which can order compensation, and the case brings legal costs and publicity that puts off customers and future applicants.

2.5.3 Health and safety and consumer law

The Health and Safety at Work Act 1974

1. A safe workplace: premises, machinery and working methods must all be safe, which means guarded machines, clear walkways, proper ventilation and equipment kept in working order.
2. Training and supervision: staff must be shown how to lift safely, handle chemicals and food, and operate machinery, and new starters must be supervised until they can do it safely.
3. Protective equipment: gloves, goggles, ear defenders, hard hats and high-visibility jackets have to be supplied by the employer, free of charge.
4. Risk assessment and records: the business has to assess what could cause harm, write down what it will do about it, keep an accident book and provide first aid.
5. Employees have duties too, since they must take reasonable care, follow their training and use the equipment they are given.

How health and safety law affects the business

1. Spending on equipment: guards, ventilation, protective clothing, fire equipment and regular maintenance all have to be bought and then replaced as they wear out.
2. Paid training time: every new starter needs a safety induction and existing staff need refreshers, all of it paid time away from producing or selling.
3. Record keeping: risk assessments, equipment checks and accident reports have to be written up and kept, so a manager spends time on paperwork rather than on output.
4. Slower working: checks before a machine restarts, limits on how much one person may lift and compulsory breaks all reduce how much is produced in an hour.
5. Fewer accidents and lower insurance: a good safety record means less absence, no compensation claims and a lower insurance premium, and staff who feel protected are more likely to stay.
6. Consequences of a breach: an inspector from the Health and Safety Executive can order work to stop until a danger is fixed, and a serious breach brings a heavy fine, compensation for the injured worker and prosecution of the managers responsible.

Consumer law and trade descriptions

1. Descriptions must be honest everywhere a customer sees them: adverts, packaging, labels, menus and online listings, including price claims such as "was £80, now £40".
2. Goods and services must be of satisfactory quality and fit for purpose, so they have to work properly and last a reasonable time.
3. When a product is faulty or was not as described, the customer has the right to a refund, a repair or a replacement.
4. The seller is responsible, not the manufacturer, so the shop that took the customer's money is the one that has to put it right.

How consumer law affects the business

1. Checking every claim: adverts, labels and website listings have to be checked before they go out, which takes management time and sometimes paid legal advice.
2. Staff training: shop and call centre staff need to know what a customer is entitled to, so that they neither refuse a lawful refund nor give away money the business does not owe.
3. The cost of returns: refunds, replacements and return postage all cost money, and stock that comes back rarely sells again at full price.
4. Tighter quality checks: because the seller carries the cost of faults, it inspects deliveries, keeps records of complaints and drops suppliers whose goods keep failing.
5. Trust and repeat custom: honest descriptions and easy refunds bring customers back and earn recommendations, which is why many retailers give more than the law demands.
6. Consequences of a breach: trading standards can investigate, a false description can lead to prosecution and a fine, customers can reclaim their money, and the publicity drives away trade the business had already won.