Many have heralded the Government's new family-friendly policies as a step in the right direction - but what about the impact on the employers that are responsible for implementing these policies? A new study by the Institute of Directors (IoD) finds that SMEs are particularly affected by the cost of family-friendly policies. We examine why SMEs are hardest hit and what they can do to reduce costs while complying with the Government regulations.

First, let's look at exactly what these family friendly policies are:

• the most important condition is that women cannot be dismissed or selected for redundancy for any reason connected to pregnancy, childbirth or maternity leave
• a woman is entitled to paid time off for ante-natal appointments and to special health and safety protections on the job
• she is entitled to 18 weeks maternity leave, as long as the employer is given 21 days notice, and to return to her same job. In April 2003, this will be extended to 26 weeks
• she is entitled to an additional 29 weeks from the birth of the child if she has been with her employer for at least a year and 11 weeks. After the additional maternity leave, the women's employer is required to give her the same job unless it can be proved that it is not reasonably practicable in which case a suitable alternative job on similar terms and conditions must be offered
• a woman is entitled to Statutory Maternity Pay (SMP) if she has been with her employer for at least 26 weeks before the qualifying week of her pregnancy (15 weeks before the due date). She is paid for a total of 18 weeks, the first six at 90 per cent of her average earnings and £60.20 a week for the last 12 weeks. In April 2002, this will be raised to £75 week and to £100 a week in April 2003
• if a woman is not eligible for the SMP, she may be able to claim the Maternity Allowance (MA) from the Benefits Agency. Unemployed and self-employed women may also be eligible for MA
• in April 2003, fathers will be entitled to two weeks paternity leave, paid at £100 a week. And adoptive parents will be allowed to take maternity leave and pay

And if the woman is away from work for a pregnancy related illness in the last six weeks of the pregnancy, the employer is allowed to start the maternity leave immediately.

After the maternity leave, if a woman needs to return to work part-time due to childcare, her employer is required to give her request serious consideration or the woman may have a case of Indirect Sexual Harassment.

These are the guidelines set down by the Government for all business. But for SMEs, the rules are slightly different. Most employers are reimbursed the SMP at 92 per cent but businesses that pay in less than £20,000 a year in NHS benefits are reimbursed at 105 per cent in order to help cover costs. And businesses employing five or fewer people are not required to keep a woman's job open after the AML.

While those two exceptions may help SMEs defray some costs caused by the family-friendly policies, the study by the IoD claims that that is not enough. Large companies are better able to deal with the administration of these policies as they already have accountants, solicitors, human resources personnel, etc in place. SMEs are unlikely to have these resources in house and therefore must pay to outsource. And where large companies may have the staff to cover the responsibilities of the woman on maternity leave, a SME will most likely have to hire a temporary worker to fill the woman's job until she returns.

Ruth Lea, head of the policy unit at the IoD, worries about the effects these costs will have, not only on the businesses but on female employees as well.

"British employers are, on the whole, flexible about employee working practices. But there are limits, especially when you're a small business and dealing with key employees," she said.

"Every employee, man or woman, should understand this. The current maternity rights are already putting employers off recruiting youngish women Any further work-life balance regulation could only damage business and, ironically, the groups, especially women of prime child-bearing age, that such regulation is intended to help."

While the IoD does not advocate any further regulation, it does support the idea of family-friendly policies in general - just that they should be voluntary. Many businesses already have similar policies in place because they make good business sense. SMEs in particular know the value of retaining loyal, skilled employees. And employees in general work better when they are happy and feel that their employers care about their well-being, resulting in reduced sickness and ad hoc absences and increased productivity.

Also advocating these principles is the Work - Life Balance Campaign, which has been developed by the Department for Education and Employment (DfEE) in partnership with employers for work-life balance and does not involve legislation but encourages employers to explore ways to allow better work-life balance for all. But while their goals are similar to those of the IoD, they have supported their campaign with information from an Institute of Employment Services study that claims that SMEs are actually helped by the Government's family-friendly policies, some small businesses saving up to £250,000 on their budgets.

The IoD feels that while the regulations may benefit some SMEs, in general companies should be allowed to decide their own policies. Richard Taylor, press officer at the IoD, believes that blanket policies will not work for everyone, so regulation should be replaced with companies forging their own policies between employer and employee that are specific to the situation.

The IoD offers some services to its members such as legal and tax advice that can help ease the burden of having to outsource. But other than the rollback of some of these regulations, Taylor does not see many solutions for SMEs to the difficulties caused by family-friendly policies.

Christine Gowdridge, director of the Maternity Alliance, does not see the necessity for a change in legislation. "Most small employers are already amazingly flexible because they know their staff and care about them. They are already operating family-friendly policies, saying go home if Billy is sick," she said.

Gowdridge is sceptical of IoD research, saying that they always predict the worst when new regulations are introduced. "We heard the same thing when maternity leave was introduced in 1975. But the birth rate hasn't shot up and industry hasn't crumbled."

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