Opinion: Small Businesses Need Assistance
[Opinion column written by Jeremy Deacon]
For me, this is quite timely – but only because I was going to write a blog on what I perceive are the obstacles to setting up a small business here in Bermuda.
The US Consul General’s initiative is to be welcomed and it is to his credit that Robert Settje is contributing to Bermuda in such a way.
But despite things like the EEZs and payroll tax relief for employing people, there is still much more that could be done to support new and fledgling businesses.
About a year ago, when I established my Public Relations Agency, Deep Blue Communications, I wrote about a lack of tangible help for sole proprietorships and small businesses.
I wrote a Letter to the Editor on the subject and had some derisive comments on the article, like ‘I did it without support, so stop crying’. That comment missed the point, as did others, because I was not asking for help.
What I was trying to do was to highlight what I thought was – and is – an extremely important issue: a lack of meaningful support for local entrepreneurs who want to start a business but who may not always have the financial means to overcome some of the barriers.
For instance, this is what the BEDC says about setting up a business [PDF here].
I’ve provided the link, so I’ll boil this down into what I think are the relevant pieces.
1. Payroll Tax is payable for any employee who works more than four hours per week. It is paid quarterly. The payable amount for each business is calculated depending on its total Gross Payroll Amount, and may range from 7.25 percent to 13.5 percent of Gross Payroll. A maximum of 4.75 percent of the employee’s gross monthly payroll may be deducted from his or her paycheck each period. The balance remains the responsibility of your business.
2. The Social Insurance Department adjusts the rate payable every August; right now, the total amount payable per week is $60.80 per employee, up to 50 percent of which [i.e. $30.40] may be deducted from the employee’s pay. The remainder is the employer’s responsibility.
3. Health Insurance is required for each employee and self-employed person. The amount varies depending on the type of medical coverage you wish to have and on the health insurance provider that you will use. The minimum legal requirement to be paid is minimum hospitalization costs as specified by the various health insurance providers.
As a self-employed person, the legal requirement for your company is “Standard Benefits”. You can get that from any private insurer or go to the Social Insurance Department for Health Insurance Plan [H.I.P.]. Your company is to pay no less than 50 percent of the monthly amount, as it can deduct no more than 50 percent from the employee’s salary.
4. Private Pension is an obligation for every Bermudian or spouse of a Bermudian who has gainfully worked more than 720 hours, which ranges from four to six months depending on the number of work-hours a week. The total contribution right now is 10 percent, so a maximum of 5 percent can be deducted from the employee’s Gross Salary.
If you are self-employed and have not yet been in operation for an entire year, you are only obligated to start this plan once you have earned a minimum of $20,000 in profits [revenue minus expenses, not counting your salary].
So, I pay a part of an employee’s payroll tax; I pay 10 percent into my pension as well as contribute to a monthly social insurance and I pay towards my employee’s pension; I pay part of an employee’s social insurance; I pay HIP for me and I pay towards my employee’s health insurance.
On top of those costs are items such as rent and bills like telephones, cleaning, internet access, etc.
What does that mean? It means that not only is it very expensive for a small business to employ someone, it means that it is also very expensive to actually start and operate a small business as a sole proprietor. It means I have to earn a hell of a lot of money even before I get out of bed.
Is this conducive to entrepreneurship and job creation? Not really.
You must have the financial resources to pay the things Government demands – even before you have any business – and not everyone has that. If you are to employ someone, you must actually earn an awful lot more than the amount you pay them in salary. For a small, developing business, that is very onerous.
In an opinion piece, Finance Minister Bob Richards says Government is ‘focused on rebuilding tourism and expanding international business because they are the two main earners of foreign dollars. Bermuda needs those dollars to pay for virtually everything we consume, from groceries and school supplies to pensions and interest payments on the public debt’.
If that policy works, there will be a trickle-down effect, however I would suggest that there needs to be a trickle-up effect as well and that more and more grass roots entrepreneurship needs to be supported.
What would I like to see?
1. A break in social insurance for at least six months [why do I have to pay for a state pension and a private pension, yes they are vital, but this is overkill, no?] and/or lowering of the minimum pension contribution for six months. Maybe scaling HIP contributions as well.
2. Helping to cut the red tape – let would-be entrepreneurs have one place where someone will sort out their bank account, tax registration, LLC registration/cost, help find an office, deal with company registration, etc. These are time consuming and confusing issues.
3. Investment in subsidized office space.
4. Free and accessible training and education. While this is good, it is only available to businesses which have been operating for more than three years and which employ at least one person besides the CEO/owner. That is fine, but it could be argued that if they have reached the age of three, they don’t need as much help as those that are one or two, or even a few months old.
I am sure readers can add other ideas – and please do.
I want to make it plain: I am not asking for a nanny state, but I am sure there are people who find themselves suddenly jobless who may need a leg up, a helping hand, a break, to help them get over these initial hurdles.
I am sure it will be of benefit in the long-run. For every failure there could be three or four successes that will grow to contribute to the long-term success of the island.
NOTE: The support I have had from Government departments has been extremely good and I don’t want this to appear to be a criticism of those very kind and supportive people.
Also, if I have missed something or misunderstood something, I’d like to know. I would also like to hear about other people’s experiences.
-Jeremy Deacon runs public relations firm Deep Blue Communications, as well as writing his blog Bermuda Blue.`
Sorry Jeremy but it almost sounds as if you want Government to set up all aspects of your business and as such you are suggesting a ‘nanny state’ despite your claims to the contrary. Why should any Government find an entrepreneur office space, open a bank account or subsidize your business office space?
If a person can’t figure out how to to those basic tasks when setting up a business then a) you probably shouldn’t open a business if you can’t figure these basis on your own accord or b) you are not motivated enough to undertake proper research or devote your time to ensuring the basics are met and thus your business will probably fail anyways.
And asking to be exempt from labour legislation requirements concerning subsidizing health insurance and pension payments to employees isn’t the best way to start a business for you or the employee. What happens when the exemption ends and the costs of your business increases? You can’t be exempt forever and all this does is raise the cost of living for the employee who will not make as much as you in this already expensive environment.
I’m just saying that it can be a daunting process and that some people might appreciate or need a helping hand. It can be pretty confusing…
Re the exemptions – I think the legal requirements are quite onerous when you are first setting up a business. A short exemption would allow a business to build some momentum before it was suddenly hit with more bills.
Jeremy – just point her in the direction of SCORE and the SBA – among so many other programs that I am able to take advantage of in the USA. I own a small business that targets Bermuda and I’m started it 18 months ago. I have had help from the US government, tax attorneys that did my taxes for free (as a part of the SCORE program), and general advice. I’ve also used shared office space for free that is sponsored from my city government. It all helps. I now have a full time employee, invest more money into my business, and overall – bring more money and people into Bermuda. Helping people out is what it is all about. I offer my services for free to others now since I was offered help myself. This is the way the world works. I’m on my way with a successful business, but the government did help me out.
You make my point exactly. Thanks for this.
Glad to see a guy from Saltus asking for consideration. No one is listening to the cries from Berkley. Guess it’s not enought pain in the streets for this government to listen.
The either don’t have a clue or simply don’t know what to do.
Thanks for adding your voice Deacon.
FYI – not from Saltus. Educated in the UK
Also, this has not just happened ….
What does Saltus and Berkeley have to do with anything?
You insult the man in addressing him by his last name alone and you assume you know something about his background when you obviously don’t. And this when you appear to be AGREEING with his point so I do not see why you feel any need to be confrontational. Just sayin’,
Does not bother me. I’ve been called a lot worse believe me ….
I’m all for supporting entrepreneurs, but if you remove too many barriers to entry, you also run the risk of creating a problem with people who haven’t sufficiently planned for the full cost of running a business, and who haven’t tested the market and come up with a successful concept; they then lose everything they have when it goes wrong. There are a number of small retail business that have opened in the last year – few customers, thousands of dollars of working captial tied up in inventory that is not being sold, and onerous contracts for rent etc.
Understood – but how many people are being put off because of the barriers to entry? I am not suggesting supporting them forever, just making it easier and giving some incentives…
What barriers to entry, Jeremy? I get it that an employer has to navigate Payroll Tax, Nat Ins, and minimum Health Insurance. I’ve done these things – they aren’t all that hard. Frankly, if someone thinks setting up three things is too difficult, is that person really cut out to run their own business?
The ones you mention are barriers to entry in so far as might be daunting to know that you have to pay all those even before income is coming in.
No, they are not hard to master at all, but they are an expense as fledgling small business might find hard to deal with.
Couple that, though, with the other things you need to do: LLC, office space, company registration, additional bills etc and you can begin the see that it can seem overwhelming especially if you have little or no experience and have had to set up a small business after losing your job.
I did it, others do it and others still will do it – set up a business – but all I am saying is why not extend more help, in the short-term?
So you want free company registration, free legal services, free office space, no payroll tax, no insurance cost, no healthcare cost, and someone to assist you with any forms you might have to fill in.
Anyone expecting that lot doesn’t really have a viable business. Sorry.
No, I am suggesting that to help a business get off the ground that they are given some breaks such as temporary relief from one or more of the tax/health costs that exist. I am talking about subsidies (such as an incubator programme) or a so-called one stop shop where people can help, in one go, with the paper work.
So no, he’s wrong, you don’t want subsidies, tax breaks, exemption from health insurance, subsidies, and free legal help.
What you actually want is subsidies, tax breaks, exemption from health insurance, and free legal help.
Just having the skills in an area to make a living like being a writer – certainly does not mean you are qualified in administration. I think jeremy’s point is that people can use a little breathing space to cope with the extra burdens of being their own boss, or else they may be turned off by them before they even begin. Business brings plenty of challenges no matter how much help you get, so lowering the hurdles a bit is good for bermuda,
@ Islander,
Summed up nicely.
@ Mr. Deacon, carry on. I would bet that your comments will be appreciated by more people than those that disagree.
Thank you. I have certainly had a lot of personal feedback which suggests you are right…..
Exactly
Mr. Deacon, they really believe in Quo Fata Ferunt. They don’t realize it is different this time.
In China the symbol for risk and opportunity are the same.
No one is coming to save us. We have to save ourselves.
Thanks for adding your voice Mr. Deacon from the U.K.
“2. Helping to cut the red tape – let would-be entrepreneurs have one place where someone will sort out their bank account, tax registration, LLC registration/cost, help find an office, deal with company registration, etc. These are time consuming and confusing issues.”
Wholly agree on this point. I’m in the process of setting up my own business and am finding the cost of establishing it is quite prohibitive.
I find it rather disappointing that you have to have a law firm submit your registration as well as handle all of the paperwork as there are a lack of resources to make this process easy.
A big step would be providing sample paperwork and guides as well as allowing individuals to submit their paperwork directly rather than via a law firm. This would help lower the barrier to starting a business.
Good luck Cuz.
Jeremy….Quick question….In the UK is there a program wherein you would receive assistance in setting up a business with the view that you would provide employemnt for others?
I am totatlly with you on this article and I would like to thank you for putting this out there.
I am in the process of setting up a small business and let me tell you first hand that it is has been “no walk in the park” I have had to literally “jump through hoops” to garner any sort of support or assistance and yes it can be very daunting.
To “Politricks” I must admit that I was a bit “put off” by your opinion and even though I don’t agree I would respectfully just like to say that even the very best laid out plans can go array…You could have the perfect plan…the financing….the means…etc..but that does NOT guarantee that your business/venture will be successful. The person that might need assistance as mentioned above might very well be the business that “sets it off” and becomes very profitable…
I don’t think anyone setting up a buiness is looking for a hand out (at least I’m not) but a hand up…….there’s a difference…..
Well put. That is what I was getting at in the article. As for your question about the UK, I really don’t know. I’ve never been in the position to set up a business there and was always employed.
Agreed (in terms of best laid plans and failures).
So how will Government providing the basics for a small business (i.e. opening a bank account, finding office space for your business etc.) going to ensure that the business ultimately succeeds?
If someone can’t figure out to open a business bank account or search for business space on their own it doesn’t bode well for their skills or their ability to run a successful business in my view. A tax break for employing people is temporary assitance and won’t last long and kicks the proverbial can down the road. And denyign employed people what is guaranteed under labor legislation (pension and health care) isn’t going to help anyone in the long run.
Just my opinion, but it is like some in this island expect the Government (any Government in power that is) to ensure that their lives are successful via these suggestions, and the constant blaming the Govt for bad public education results, building housing etc. Sorry I have not been given anything by any family member etc. in my life and I wold definitely never ever rely or expect a Government to ensure that my life is a success or provide happiness.
As I said it is just my opinion.
There is no guarantee it will help it succeed – but it might guarantee that more people try ……
*employment
Thank you…I only asked about the UK because that was what I was made to understand that the you can apply for a said amount of monetary funding to start-up a business and you don’t have to pay it back.
…………………………………………………………..
Like I said it’s been a strenuous process in setting my business up here on the island but I finally see some light at the end of the tunnel and should be open within the next few weeks with the view of hiring at least one person to work for me.
Good for you! I hope you are really successful. If you need any press releases/publicity drop me an email: jdeacon@northrock.bm
For sure….Thank you….
I think you are all missing the big picture.
The situation in Bermuda is not conducive for any small Business.
“ONE THIRD of our Bermudian population is Entrenched as a Government employee and on a Government PAYROLL of over $750Million dollars per year.Beside increadable benefits,such as the Bus drivers with (14) weeks sick leave long vacations and all the public holidays.Driving a bus on a Sunday ($90.00) and “HOUR” that they attend.
Government school teachers vacation when school is in besides Christmas easter summer all half term breaks all public holidays.
There health and retirements,I bet you wish you could have.
And that is only for attending they produce “NOTHING” but are entitelled.(note:-I worked in Government for 6 years)
The local economy will never support the “HUGE GOVERMENT” that we have.We cannot generate that kind of revenue.
So the big Government comes up with all kinds of new TAXES everywhere to continue to feed them selves.
They need the money to Pay themselves so they will take it from you,where else can they get it ??????
It is all about regulate you and TAX YOU because we need to be PAID snd all our benefits.
We as a country live off the international and excempt
companies.
AS MR RICHARDS THE FINANCE MINISTER SAID………….
Money does not grow on trees
Money comes from outside of Bermuda.
un-quote.
Manny Bermudians have a hard time wrapping there head around that.They cant conceive that for 400 years Bermudians have left Bermuda to earn money to bring back to Bermuda.
We cannot afford a 8,000 person Government to oversea 25,000 working age Bermudians,the rest are children or old people.
So you small Business see if you can generate $1.1Billion tax dollars to support this HUGE GOVERMENT.(if the IB companies for some reason do a quick exit)
Also explain to your children and grand children how they can pay off this $2.5Billion “DEBT” besides the Civil service and the Government pensions underfunded by about another $3Billion.
With regulation with TAXES it is very difficult to start a Business,I know as I was going to start one to create some employment in the community.But the money needed especially for Government was stupid,so I said bye bye,dont need that agro.
Beside we do have a shortage of young Bermudians male and female.
And about 10,000 work permits.And ofcourse everyone wants to work for Government,everyone would love to have a Government Job.
And to all the small Business people,i wish you every success
Don’t give up just keep going you will make it and in the end will be very worth while.Just remember (blood sweat and tears)
Hi Jeremy,
I think you raise some great points.
I’ve been considering starting a small business and attended a Government sponsored small business event this summer to get the details on taxes and the like.
As you alluded to the small business tax/regulatory environment isn’t as welcoming as it could (and should) be.
I hope that our government takes notice of your comments and acts on some of your suggestions.
Thank you and if you do set up a business, I’d be happy to help with advice.
“Government school teachers vacation when school is in besides Christmas easter summer all half term breaks all public holidays.
There health and retirements,I bet you wish you could have.
And that is only for attending they produce “NOTHING” but are entitelled.(note:-I worked in Government for 6 years”
uh… did he/she just say school teachers produce NOTHING?
If you are an individual running a business and not incorporated as a Company, then what do you pay payroll tax on ? Is it based on 100% of any money that comes in, or is it based on the net left after covering provable business expenses?
This came up as a point of discussion some time back, and we never resolved the quandry. I never followed it up because it is not relevant to my employment, but I was wondering if anybody knew.
As I understand it, it is based 100 percent on what revenue comes in.
Payroll tax is based on remuneration of staff; hence the name. It is not based on revenue of the business or profits.
All items such as wages, bonuses, overtime, and other paid benefits to staff are included in the calculation. You can view this online at the Bermuda government web site which links to the officer of the tax commissioner page and guide.
Existing businesses are having a very difficult time meeting these tax obligations, just not new start ups.
Thank you all for your feedback. It would be good to keep this debate going.
Mini-loans or grants would be nice $1,000.00 – $5,000.00 – All overseas company’s coming to open up in Bermuda – should contribute $1,000.00 towards this fund. How many foreign companies here now – that could be a good starting point. If you get a mini-loan or grant you pay back with your time and effort to raise more money for the fund. Or payback after 3 – 6 months with a minimum payment plan.