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Relations in Small and Medium Enterprises

Employee Relations in Small and Medium Enterprises

A Non-union Approach


The term SME or small and medium business enterprise is often used to describe a business enterprise that has anywhere between 10 to 15 employees for a small business whereas anything under 250 would be a medium enterprise. However, the number of employees is not the only classification that is used, and can be as diverse as turnover, industry, or business structure. According to a survey carried out by the Department for Business, Innovation & Skills (BIS) in 2004, the UK “had 1.16 million private sector firms with fewer than 250 employees, representing 94 per cent of all employers in the UK economy.1 These SMEs employed a total of 8.66 million employees (36 per cent of all employees in the UK) and they accounted for 47 per cent of private sector employers’ turnover.” This suggests the apparent importance of these enterprises.

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The other important aspect of SMEs is their ability to be innovative, and adaptive to the constantly changing market environment, creating employment opportunities in the economy, and contributing to the Gross Domestic Product (GDP). SMEs vary in size depending on the industry, and skills. A biotechnology firm is likely to have fewer highly skilled employees where as a cleaning services firm will have more unskilled workers. Nonetheless, the fact that a significant fraction of the working population is employed by an SME, it is necessary to understand how these enterprises are managed, and how human resources policies regarding recruitment, training, performance evaluation, and day to day employee relations are adopted and practiced.

Management and employment relations in an SME

A typical structure of an SME is largely business, product or process orientated, with little specialist involvement in areas outside the remit of the business, human resources for instance. Managers have little expertise or qualifications to conduct personnel management task, most managers tend to rely on their past experience in managing relationships. This is interesting because it provides a unique opportunity to study management issues and strategies that can be anywhere from non-existent in a small firm to informal and semi-formal in a medium firm. Tradition management styles that have been identified in Fox (1974) and Purcell and Sisson (1983), relate to management perspectives with regards to employee relations in an industrial setup. The classifications were based on the type of views held by both management and employees, where both could be either unitary or pluralist. Marchington and Parker (1990) point out that these differences were in relation to how management viewed unions and their involvement on issues like employee participation and conflict resolution. These assertions are applicable in a large complex organisation but may not necessarily be true in a small setup where human resources and employee relations may be absent altogether.

Goss (1991) found that management styles at small firms were likely to be characterised by how the owner-manager experience relative disposition of power, and identified four types of management control –

Fraternalism, Paternalism, Benevolent Autocracy, and Sweating


The distinction was based on how much independence employees enjoyed for every degree of dependence the employer possessed. A host of studies conducted in the UK (WERS, 2004), Europe (EIRO, 2006), and Canada (CFIB, 2004) give an idea of what management practices are adopted in the SME sector generally and how working hours, training, remuneration, and employee representation are handled. A key observation found synonymous in all the studies was that employee representation, although significant, was conducted in informal settings through individual contracts and concepts of collective bargaining and unionisation were largely absent in smaller firms but rose with firm size. And where a non-union employee structure is prevalent, it is difficult to compare or comment on the effectiveness of such a structure, as all previous studies go only as far as determining the type of employee participation practiced but do not assess their quality of impact.

Non-union employee participation

According to Guest (2001), a non-union workplace lacks formal human resources or industrial relations departments which interface between management and employees. Dundon et al., (2005) describe a non-union workplace where the importance of union is not recognised in determining employee issues such as pay and work conditions, as opposed to whether or not employees are members of any union. They also point out the reasons, incentives, and motivation for managers for choosing a non-unionised interaction with the workforce. Guest and Hoque (1994) went on to classify the various non-union employer types, differentiating them on the basis of a range of human resources attributes. They banded employers as either good, bad, or ugly depending on these attributes. Although some counter arguments to this classification were on the grounds of methodology selected and if it collected information on employee views on their employers, and the lack of motivation and incentive, if any, from the employees in preferring to be non-union (Dundon, et al., 2005).

Although type of employee participation and representation is seen as an important part of the relationship between management and employees, it is interesting to understand how these become part of the culture. Freeman and Medoff (1984) describe employee representation, or employee voice, as having both consensual and conflictual connotation, and showed how participation could impact quality and productivity, whilst on the other it could help resolve disputes. Managers in a relatively small workplace are likely to view non-union participation more favourably because they may not have experience of dealing with unions and may feel more comfortable dealing with issues locally and informally. As the workforce becomes larger and larger, the advantages of a non-union representation diminish and firms tend to seek a formal approach to interaction as seen in larger firms.

Ackers et al., (2004) suggest that direct communication with the employees is also one of the most significant concept of a non-union employee representation, adding that managers would be more willing to share information relating to the business, work arrangements, staffing and job prospects directly with employees.

Collective bargaining, remuneration, and workplace relations

The concept of collective bargaining is more or less relevant to a union based employee representation, where the propositions are deemed to be in the best interest of the entire workforce as opposed to a single employee or groups. Since the relationships between management (owners, managers) and employees are less formal, such discussions can take place individually and would reflect the firm’s position vis-à-vis a particular employee. On the other hand, managers responsible for personnel matters may be involved in other tasks and is likely to spend more time on such tasks than those in similar positions in larger firms. Wage determinations and remuneration discussions are similarly done, and could be either set unilaterally by the management or negotiated on an individual basis. Therefore it would be common to assume a variable pay structure either by merit or performance, and the likelihood to profit-sharing. Pay reviews could be less regular in such a setup and may often require to be initiated by employees.

Recruitment, training, and personal development

The recruitment process at small firm may be less formal or rigorous compared to large organisations because of the level of expertise and sophistication available within the firm. A lengthy recruitment process can be costly, and can be counter productive to the immediate requirements of the business; hence employers may be willing to make quick decisions on the basis of the incumbent’s skills alone. WERS (2004) suggest that training and development opportunities were dependant on firm size, the larger the firm the more likely they were to offer on or off-the-job training. This can be true for two reasons, firstly cost implications, and second, the option to hire an already trained worker. In a non-union workplace this can be both beneficial and disadvantageous at the same time, since over-simplification could get the job done but may not necessarily represent the best interests of employees.

Conflict resolution

Irrespective of the size of the firm, grievances can arise and depending on the relationship an employee involved has with their manager, it could be dealt with informally in the first instance, and small and medium firms would adopt such a process not because they may not have a formal grievances and conflict resolution procedures as seen in large firms. Majority of employers have such procedures for regulatory purposes, but how effectively these are used varies from firm to firm. Since SMEs are not labour intensive collective disputes are unlikely to emerge requiring collective resolution through means of a union representation. This can be viewed as an incentive for managers to have a non-unionised employee representation to avoid the hassles of dealing with the union when a dispute arises (Dundon, et al., 2005).

Employee attitudes

The WERS (2004) survey reveals that managers in SMEs were more likely to involve employees in workplace related decision making processes and employee influence was greater in small firms than larger ones. Guest and Hoque (1994) suggest that employees that feel better appreciated were more likely so see their employer as “good” non-union employers and may be even motivated to discourage a unionised workforce which would tend to reduce their influence on management decisions. The employees’ perception of workplace and management being the same, changes as firm size increases. This is significant enough incentive for managers to cultivate a non-unionised workplace. To this extent there is a big difference between employees’ expectations for collective representation and employers’ willingness to subscribe to one. On the whole, the management is in a position to decide what type of representation they would like, and what mechanisms to utilize.


Small and medium-sized firms are vital for the growth of the economy, and play a significant role in providing employment to the population. The size and nature of products and services offered by these firms varies distinctly, and so does their management and employment practices. Size of the workforce does influence the type of management style that will be adopted, but it also depends on managers (owners) past experience and their perception of how work should be managed based on a set of beliefs. Small businesses have been seen to be less formal and tend to follow a close contact with their employees, and do not conform to hierarchal structures of management that are predominant in large organizations. These structures of relationships tend to get more formal as the firm size increases. Employees, on the other hand, find little or no difference between their workplace and management, an important distinction observed in larger firms which clearly distinguish between the “firm” and the “management”. Although employee relations in small and medium sized firms tend to be more informal they can be inflexible to changes in the workplace. Managers may lack the necessary experience and expertise in issues like performance appraisals and dispute resolution; they tend to rely on their experience and prefer to engage the employees directly. Issues of pay determinations and other forms of compensation are set out by managers but it allows employees to engage with management over discussions, without the necessary involvement of collective employee representations like unions. The dialogue is less formal and gives the management opportunity to consider personal circumstances of employees. Similarly conflict resolution and grievances are accorded an informal process, whereas any disciplinary action resulting from such discussions may be formal and follow a traditional approach. And because managers prefer to have a less formal involvement of employees the concept of non-unionized representation is favoured as management sees more flexibility in running the business and find to have less control when a collective representation is sought. Formality in relationships increases with firm size when management wants to have more distance between owners and employees in order to maintain a consistent level of control through decentralization. The degree of formality exercised may vary within the firm itself, for instance management may adopt a more formal approach to employee training and development, but at the same time conduct performance appraisals informally.

In regards to SMEs the nature of employment relations is not always straightforward and management practices, which may appear simple and unsophisticated, are influenced by a variety of factors and have evolved as a response to a particular need as the industry and business requirements, or regulations, evolved over time.


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