the benefits of employment contracts for employers and employees

Cambridge IGCSE Business Studies (0450) – Complete Revision Notes

How to use these notes

• Read each numbered section in the order of the syllabus – this mirrors the exam structure.
• Highlight the Assessment Objective (AO) codes at the start of each sub‑section.
  • AO1 – recall & describe
  • AO2 – explain & interpret
  • AO3 – apply knowledge to new situations
  • AO4 – analyse, evaluate & make decisions
• Use the tables and examples to practise short‑answer questions and case‑study analysis.
• Check the “Key Terms” box at the end of each section for quick revision.

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1 Understanding Business Activity

1.1 What a Business Does (AO1)

• Needs vs. Wants – a need is essential for survival (e.g., food, shelter); a want is a desire for something not essential (e.g., designer clothing).
• Goods and Services – tangible products vs. intangible actions.

1.2 Classification of Business (AO1)

Sector	Primary	Secondary	Tertiary
Definition	Agriculture, mining, fishing – extraction of raw materials.	Manufacturing, construction – turning raw materials into products.	Retail, banking, education – providing services.
Example (UK)	Farming, oil extraction.	Car factories, house building.	Supermarkets, NHS.

1.3 Enterprise and Growth (AO2)

• Entrepreneurship – the process of creating a new business, taking risks, and innovating.
• Growth vs. Failure – growth measured by turnover, profit, market share; failure often due to poor cash flow, inadequate planning, or market changes.

1.4 Size and Structure of Business (AO2)

• Micro (1‑9 employees), Small (10‑49), Medium (50‑249), Large (250+).
• Ownership forms – sole trader, partnership, private limited company (Ltd), public limited company (PLC).

1.5 Objectives and Stakeholders (AO2‑AO4)

• Common objectives – profit maximisation, growth, market share, survival, corporate social responsibility.
• Stakeholder groups – owners, employees, customers, suppliers, community, government.
• Conflicts can arise (e.g., profit vs. employee wages). Evaluate using cost‑benefit analysis.

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2 People in Business

2.1 Motivation (AO1‑AO3)

• Maslow’s Hierarchy of Needs – physiological → safety → social → esteem → self‑actualisation.
• Herzberg’s Two‑Factor Theory – hygiene factors (salary, conditions) prevent dissatisfaction; motivators (recognition, achievement) create satisfaction.
• Practical methods – pay rises, bonuses, training, job enrichment, employee recognition schemes.

2.2 Organisation & Management (AO1‑AO4)

• Organisational structures – line, functional, matrix, flat, hierarchical. Example: a functional structure groups staff by expertise (marketing, finance, production).
• Management functions – planning, organising, leading, controlling (POLC).
• Leadership styles – autocratic, democratic, laissez‑faire; evaluate impact on morale and productivity.
• Trade unions & employee relations – collective bargaining, industrial action, legal protections.

2.3 Recruitment, Selection & Training (AO1‑AO3)

• Recruitment methods – internal (promotion, transfer) vs. external (advertisements, recruitment agencies).
• Selection tools – application forms, interviews, assessment centres, psychometric tests. Ensure they comply with the Equality Act 2010.
• Training types – on‑the‑job, off‑the‑job, induction, professional development. Legal requirement: health‑and‑safety training.

2.4 Downsizing, Redundancy & Dismissal (AO2‑AO4)

• Redundancy – position no longer needed; must follow statutory consultation, notice, and payment.
• Unfair dismissal – protected after 2 years’ service; must be for a fair reason and follow a fair procedure.
• Evaluate alternatives (e.g., reduced hours, redeployment) before redundancy.

2.5 Employment Contracts – Benefits & Legal Controls (AO1‑AO4)

Why a contract?

An employment contract is a legally binding agreement that sets out the rights and responsibilities of the employer and the employee. It provides a clear framework for the employment relationship and protects both parties.

Benefits for Employers (AO2)

• Clarity of expectations – duties, hours, performance standards and remuneration are defined.
• Legal protection – reduces risk of disputes, unfair‑dismissal claims and breach of contract actions.
• Cost control – specifies salary, overtime rates, bonuses and any other financial commitments.
• Performance management – includes appraisal, training and disciplinary procedures.
• Business continuity – notice‑period clauses and succession‑planning help minimise disruption when staff leave.

Benefits for Employees (AO2)

• Job security – terms of employment and conditions for termination are set out.
• Clear remuneration – salary, overtime, bonuses and benefits are recorded in writing.
• Statutory rights – holiday entitlement, sick pay, maternity/paternity leave and other legal rights are confirmed.
• Career development – training, promotion pathways and performance‑review procedures are often included.
• Dispute resolution – a fair process for handling disagreements is usually outlined.

Comparison of Benefits

Benefit	Employer Perspective	Employee Perspective
Clarity of terms	Defines duties, hours and pay, reducing ambiguity.	Provides a clear understanding of what is expected and what is received.
Legal protection	Limits exposure to unfair‑dismissal claims.	Ensures statutory rights are respected and enforceable.
Cost control	Sets fixed salary and overtime rates.	Guarantees agreed remuneration and benefits.
Performance management	Allows structured appraisal and disciplinary action.	Provides transparent criteria for promotion and development.
Job security & continuity	Notice periods help plan replacements.	Notice periods protect against sudden loss of income.

Key Statutory Controls (AO2‑AO4)

1. Employment Rights Act 1996
   • Written statement of particulars – job title, pay, hours, place of work, start date.
   • Statutory notice – 1 week after 1 month’s service; thereafter 1 week per year of service (max 12 weeks).
2. National Minimum Wage Act 1998
   • Minimum hourly rates for different age groups and apprentices.
   • Requirement to keep accurate records of hours and pay.
3. Working Time Regulations 1998
   • Maximum average 48 hours/week (unless employee opts out).
   • At least 5.6 weeks paid annual leave.
   • Rest breaks – 20 min if >6 hours, 11 hours daily rest, 24 hours weekly rest.
4. Equality Act 2010
   • Protects against discrimination on nine protected characteristics.
   • Applies to recruitment, terms, training, promotion and dismissal.
5. Health and Safety at Work Act 1974
   • Employer duties – safe workplace, risk assessments, equipment, training.
   • Employee rights – to be consulted and to work in a safe environment.
6. Unfair Dismissal & Redundancy
   • Protection after ≥2 years’ continuous service.
   • Fair reasons: conduct, capability, redundancy, statutory restriction, other substantial reason.
   • Statutory redundancy pay – based on age, service length and weekly pay (subject to a cap).

How Legal Controls Appear in a Contract (AO3)

• Specific clauses for notice period, disciplinary and grievance procedures, pay rates, holiday entitlement, and health‑and‑safety duties.
• Reference to a separate employee handbook for detailed policies is acceptable if the handbook is readily accessible.
• Non‑compliance can lead to:
  • Contract deemed void or unenforceable.
  • Legal claims (unfair dismissal, discrimination, breach of statutory rights).
  • Financial penalties, compensation payments, reputational damage.

Related HR Processes (AO4)

Suggested Diagram

Flowchart: Contract Terms → Legal Controls → Benefits for Employer & Employee → HR Processes (Recruitment, Training, Performance, Redundancy)

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3 Marketing

3.1 Role of Marketing (AO1‑AO2)

• Identifies and satisfies customer wants and needs.
• Helps a business to achieve its objectives (e.g., increase market share, profit).

3.2 Market Changes & Segmentation (AO2‑AO3)

• Market segmentation – dividing a market into groups with similar needs (demographic, geographic, psychographic, behavioural).
• Example: a sports‑wear brand targets “young, active, urban males (18‑25)”.

3.3 Marketing Research (AO2‑AO3)

• Primary research – surveys, interviews, observation.
• Secondary research – published statistics, trade journals.
• Simple research design: define objective → choose method → collect data → analyse → draw conclusions.

3.4 The 4 Ps (Product, Price, Place, Promotion) (AO1‑AO4)

Element	Key Decisions	Example
Product	Features, quality, branding, packaging.	Introducing a low‑sugar variant of a soft drink.
Price	Pricing strategy (penetration, skimming), discounts, credit terms.	Penetration price to enter a new market.
Place	Distribution channels, location, logistics.	Using online retail alongside high‑street stores.
Promotion	Advertising, sales promotion, public relations, personal selling.	Social‑media campaign with influencer endorsements.

3.5 Legal & Ethical Issues in Marketing (AO2‑AO4)

• Misleading advertising – must be accurate and not deceive.
• Consumer protection – rights to refunds, warranties.
• Ethical concerns – targeting vulnerable groups, environmental claims (green‑washing).

3.6 Marketing Internationally (AO2‑AO3)

• Entry modes – export, licensing, joint venture, wholly‑owned subsidiary.
• Adaptation vs. standardisation of the 4 Ps.
• Example: a UK clothing brand adapts its size chart for the US market.

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4 Operations Management

4.1 Production Methods (AO1‑AO2)

• Job production – one‑off items (custom furniture).
• Batch production – groups of items (baked goods).
• Flow (mass) production – continuous, high volume (car assembly).
• Lean production – minimising waste, just‑in‑time inventory.

4.2 Costs & Economies of Scale (AO2‑AO4)

• Fixed costs (rent, salaries) vs. variable costs (materials, energy).
• Economies of scale – average cost falls as output rises (spreading fixed costs).
• Diseconomies of scale – inefficiencies when a firm becomes too large.

4.3 Break‑Even Analysis (AO2‑AO3)

Break‑Even Point (BEP) = Fixed Costs ÷ (Selling Price per unit – Variable Cost per unit)

Item	Amount (£)
Fixed Costs	30,000
Selling price per unit	25
Variable cost per unit	15
BEP (units)	3,000

Interpretation: The business must sell 3,000 units to cover all costs; any sales beyond this generate profit.

4.4 Quality Management (AO2‑AO4)

• Quality assurance (process‑based) vs. quality control (product‑based).
• Techniques – ISO 9001 certification, Six Sigma, Total Quality Management (TQM).
• Impact on reputation, waste reduction and customer satisfaction.

4.5 Location Decisions (AO2‑AO4)

• Factors – transport costs, labour availability, market proximity, government incentives.
• Example: a distribution centre placed near major motorways to minimise delivery times.

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5 Financial Information & Decisions

5.1 Finance Needs & Sources (AO1‑AO2)

• Short‑term finance – overdraft, trade credit, factoring.
• Long‑term finance – bank loan, lease, issue of shares, bonds.
• Internal sources – retained earnings, sale of assets.

5.2 Cash Flow Forecast (AO2‑AO3)

Simple monthly forecast (illustrative):

Month	Cash Inflows (£)	Cash Outflows (£)	Net Cash (£)
Jan	50,000	45,000	5,000
Feb	55,000	48,000	7,000
Mar	60,000	52,000	8,000

Positive net cash each month indicates good liquidity.

5.3 Income Statement (Profit & Loss Account) (AO1‑AO2)

Item	Amount (£)
Sales Revenue	200,000
Cost of Goods Sold	120,000
Gross Profit	80,000
Operating Expenses	30,000
Operating Profit	50,000
Interest	5,000
Profit Before Tax	45,000
Tax (20 %)	9,000
Net Profit	36,000

5.4 Balance Sheet (Statement of Financial Position) (AO1‑AO2)

Assets	£	Liabilities & Equity	£
Non‑current assets	150,000	Non‑current liabilities	70,000
Current assets	80,000	Current liabilities	30,000
		Owner’s equity	130,000
Total	230,000	Total	230,000

5.5 Ratio Analysis (AO2‑AO4)

• Gross profit margin = Gross Profit ÷ Sales × 100 = 80,000 ÷ 200,000 × 100 = 40 %.
• Current ratio = Current Assets ÷ Current Liabilities = 80,000 ÷ 30,000 ≈ 2.7 (healthy liquidity).
• Interpret results and suggest actions (e.g., improve inventory turnover if current ratio is too high).

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6 External Influences on Business

6.1 Economic Cycle (AO1‑AO2)

• Phases – expansion, peak, recession, trough.
• Impact on demand, pricing, hiring and investment decisions.
• Example: during a recession a retailer may introduce discount promotions to maintain sales.

6.2 Government Policy (AO2‑AO4)

• Fiscal policy – taxation and public spending (e.g., VAT increase raises costs for businesses).
• Monetary policy – interest rates set by the central bank (higher rates can reduce borrowing).
• Regulation – health‑and‑safety, environmental standards, competition law.

6.3 Environmental & Ethical Issues (AO2‑AO4)

• Corporate social responsibility (CSR) – charitable work, sustainable sourcing.
• Legal requirements – waste disposal, emissions limits.
• Consumer pressure – “green” branding can boost sales but risks green‑washing accusations.

6.4 Globalisation & International Trade (AO2‑AO3)

• Benefits – larger markets, cheaper inputs, economies of scale.
• Risks – exchange‑rate fluctuations, cultural differences, political instability.
• Example: a UK electronics firm imports components from China; a 5 % fall in the pound increases cost.

6.5 Multinational Corporations (MNCs) & Exchange Rates (AO2‑AO4)

• MNCs operate in several countries, often using transfer pricing to allocate profits.
• Exchange‑rate movements affect export competitiveness and import costs.
• Hedging techniques – forward contracts, options – can reduce risk.

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Assessment Objectives Summary

AO	What it tests
AO1	Recall of factual knowledge and terminology.
AO2	Explanation of concepts and processes.
AO3	Application of knowledge to unfamiliar contexts (e.g., case studies).
AO4	Analysis, evaluation and making justified business decisions.

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Quick Revision Checklist

• Can you list the five broad syllabus sections and their key sub‑topics?
• Do you know at least two benefits of an employment contract for each party and the main statutory controls?
• Can you draw and label a simple organisational chart and explain the difference between line and staff authority?
• Are you able to calculate a break‑even point and interpret a current ratio?
• Can you discuss how a change in government tax policy might affect a small retailer?

Use these notes to create flashcards, practice past‑paper questions and test yourself on the AO mapping. Good luck with your revision!