'Siege mentality': Government changes 'shaking' small businesses

Small businesses are fundamental to the strength of the economy, with the sector contributing more than a quarter of GDP and employing 30 per cent of the workforce. But now, business owners say the raft of legislative changes implemented in the past six months are harming their livelihoods - and they only expect things to get worse.

Every week, small business owner Lizzi Whaley, says she spends at least three hours complying with rules and regulations.

As owner and chief executive of Auckland design company Spaceworks, Whaley employs 19 fulltime staff. Recent changes to employment law mean the business now spends an extra $750-$1000 a month on compliance, she calculates, and it has had to hire an external provider to ease the load.

Changes to rules on tea and lunch breaks have probably had the biggest effect, says Whaley. "I've never been a clock-watcher before, but it has made me go, 'right, have you had your breaks, are you having time off, are you resting', all that kind of stuff."

And in general, she is finding it hard to keep up with the "constant stream of changes".
The sole shareholder in Spaceworks since 2006, Whaley says there has never been a more disruptive time in the 13 years she has been running the agency.

Whaley is in frequent contact with other companies, many of which echo her views.
"Hospitality and retail - they are the ones that are finding it the most difficult."

As small and medium-sized businesses struggle to come to grips with new and seemingly ever-changing employment law, the Government insists it is doing everything it can to help.

But critics say "too much change, too soon" is hitting business confidence and operators' bottom line, and that many are finding it hard to keep up with the pace of new rules.

Small firms contribute more than a quarter of New Zealand's GDP and employ about 30 per cent of all workers.

But a raft of law changes have landed within a relatively short time. These include changes to employment law, such as the end of the 90-day trial period for businesses with more than 20 staff, a new law allowing leave in cases of domestic violence, changes to lunch and tea breaks, payday filing for tax purposes, and proposed apprenticeship and vocational training changes.

Businesses have also faced a significant increase to the minimum wage and there are proposed changes to legislation on hiring overseas workers, and to apprenticeship and vocational training programmes.

While New Zealand is often ranked as the world's easiest place to do business, a fundamental economic measure is missing: this is the only developed nation that does not track the financial impact of compliance.

Employers and Manufacturers Association chief executive Brett O'Riley says small business is under an unprecedented amount of pressure. Photo / Chris Loufte

When Brett O'Riley, chief executive of the Employers and Manufacturers Association (EMA), took on the role about three months ago, the amount business spends annually on compliance was one of the first figures he requested. He says he was shocked to find out there was no official data.

Data vacuum

In 2012 the National Government stopped measuring the cost of compliance without explanation.

That compliance cost was tracked by the Ministry of Economic Development, but ministers at the time decided other initiatives superseded the need for measuring and reporting on those costs, a Treasury spokesperson says.

Those initiatives included a 2012 programme which aimed for a 25 per cent cut in the cost of dealing with government, among other measures.

But as compliance costs stack up, the lack of knowledge on just how big those costs are is alarming, O'Riley says.

"For small businesses who typically don't have their own HR function or someone dedicated to doing that, that amount of compliance is huge," he says.

"No one in government is actually looking at how these changes are impacting business. That's something we think is unacceptable ... if that's not factored into policy making then what level of concern is being applied?"

The general consensus among businesses who are EMA members is not so much that they are against incoming changes, says O'Riley. Rather, there is a sense of concern and the feeling there has been little warning or consideration of the impact those changes would have operationally and financially.

One example is the Domestic Violence Victims Protections Act, permitting victims of abuse to take an additional 10 days of paid leave each year.

Small Business

Such changes, and other legislation implemented in the past six months as part of the Coalition Government's moves on "workplace reform" have made it tough to be in business, says O'Riley.

"No one disputes the fact we want to reduce domestic violence and so the intent is absolutely right, but putting all the onus on the employer and expecting the employer to be responsible for that, in what is an incredibly sensitive area, is challenging.

"I often think when governments are formulating policy and use the word 'business', they think 'big'. Yes, if you've got an HR department or dedicated people you can probably manage that, but what if you're a three or four person business, which is the majority of businesses in New Zealand."

It is not surprising small business confidence is so low, he says.

"We pride ourselves on saying we're the easiest country in the world to set up a business, but what about being the easiest country in the world to manage a business?"

O'Riley says the Government is not practising the "duty of care" that businesses and society expect. He believes the sector needs an overhaul to understand how changes affect business.

The EMA has come across a couple of instances in the past few months where retail businesses have shut down, waving the white flag as they find it too tough to manage the business, staff and various changes.

One Taranaki business owner, who wishes to remain anonymous, says it is getting increasingly difficult to "feel enthused" about running a small hospitality business.

"There is an uncertainty in the business community," the woman says.

"I have seen a few businesses reduce their businesses down and close off parts of their operations in order to survive the minimum wage hike. The scary thing is there are two more minimum wage hikes to come in the next two years, which will be make or break for me."

The woman says the increase to the minimum wage has cost the business, which employs about 22 staff, an extra $78,000 annually - and wage hikes are not the only mandatory change that will hit her in the pocket.

Most of the business' chefs and kitchen staff are overseas workers.

"Employing immigrants has been a huge part of the success of our happy and smooth running kitchen," she says, adding that overseas workers are the only suitable applicants in her region.

"The process and cost for them to gain a working visa is now going to be passed on to the employer - another cost we have to absorb to the tune of $2000, not to mention the time and process of filling out the forms, training and procedures."

The Ministry of Business, Innovation and Employment (MBIE) says there are 520,000 small businesses, accounting for 97 per cent of all business in New Zealand. About 370,000 of those are recorded as having zero employees and a further 100,000 have fewer than five. There are a further 10,000 business with less than 20 employees.

As of May 2018, the sector employed 631,200 people.

Stuart Nash, Minister for revenue, small business, police and fisheries. Photo / Supplied

Revenue and Small Business Minister Stuart Nash disagrees with O'Riley's claims that changes to employment law have harmed the sector. He says changes to legislation will "modernise the workforce" and benefit employees.

"I don't accept that improvements to the minimum wage, rest and meal breaks and health and safety in employment are 'hostile' to business. Employees help drive business success. Good employers know how to take care of and reward good staff. The Reserve Bank noted last week that many businesses say the inability to find labour is a significant constraint on their growth. Better pay and conditions is one way to address that," Nash says.

"Supporting workers who have been the victims of domestic violence is not a compliance cost. Good employers know this. Apart from the human tragedy of family violence, we know there is a cost to business of lost productivity, sick days and potentially the need to invest in further recruitment and training.

"Other new policies like the tax incentive for research and development, the investments through the Provincial Growth Fund, and spending on training and skills programmes are helping to modernise the economy."

Nash says the Government is responding to international economic headwinds by providing additional support for businesses to innovate and create jobs.

Examples include setting up Business Advisory and Small Business Councils, implementing an electronic invoicing system, the Holidays Act Taskforce, and dropping ACC levies from 72c to 67c per $100 of liable earnings, which he says is expected to save business $100 million over the next two years.

Businesses in the retail industry are among those who have closed down due to finding it too tough to manage a business, staff and changes to employment law, EMA says. Photo / Supplied

"Since 2017, New Zealand has consistently topped the World Bank index which measures ease of doing business," says Nash. "Retaining the number one ranking three years in a row is testament to the economic and regulatory climate which we work hard to foster. We are comparable to Singapore for our business-friendly economic climate."

O'Riley says the combination of changes to employment law in a short time have shaken business, which had not experienced this level of disruption in a decade. The last time it experienced so much change was when the Employment Contracts Act was introduced in 1996, though he says that move was well-signalled and employers had substantial warning before it came into effect.

"There wouldn't be many other countries that would be making hostile changes to the business environment and not measuring the cost for business."

Falling business confidence

The New Zealand economy is slowing, and for many small firms scattered throughout the country, confidence is faltering.

Figures from MYOB's latest Business Monitor survey found nearly half (48 per cent) of all small and medium-sized businesses (SMEs) say they expect the local economy to worsen over the next 12 months, while less than a fifth (19 per cent) say it will improve.

Only 32 per cent of operators across all industries forecast their revenue will be up, while 19 per cent expect revenue to be down. Tourism operators, however, are considerably more positive than most.

Business Mentors NZ chief executive Craig Garner says the not-for-profit organisation, which mentors about 2500 businesses each year, has not seen any evidence of smaller businesses being in crisis.

"Change is always a challenge. While some businesses may individually be in crisis, it is not evident across the small business sector," he says, adding that cashflow and financial matters are still the top concern for many small firms.

"People are picking themselves up. Sometimes the tough times are some of the greatest opportunities for small business because it makes them look long and hard at themselves."

About 50 small firms get in touch with Business Mentors for support each week. Garner has not noticed an increase in the number of businesses seeking help since changes to legislation began late last year.

"One of the biggest issues that most seem to face is they feel like they are isolated - working alone against the machine."

National Party leader Simon Bridges says there is a "siege mentality" within the small business sector at present.

He says industrial law changes are the biggest factor affecting business confidence.

National Party leader Simon Bridges. Photo / John Borren

"The changes are negative each one by themselves ... even if you forget the content of them, the cumulative effect of the scale of change, and the nature of how it has been implemented, SMEs I think feel pretty chaotic," says Bridges.

"On top of the negative effect of the changes and how much there is, the unpredictability, that is what the small business sector feels so acutely."

Bridges agrees with O'Riley that changes are "shaking" the sector.

"Business confidence numbers plummeting is leading to self calibration by businesses. Not long ago businesses' biggest issue was finding staff - now they've decided not to bother."

Bridges also believes the Government should track the financial impact compliance has on business. "For all regulation in, something has to come off - small businesses tell me often they worry about the Government seeing all the regulation they are putting on as a 'cost-free exercise' but the reality is, it's not. It has an effect and businesses are now deciding to hire less and take fewer risks."

Changes to employment law in past six months

• December 12: Employment Relations Amendment Act 2018 comes into force, reinstating the right of union representatives to enter the workplace without consent; pay deductions can no longer be made for partial strikes.

• April 1: Domestic Violence Victims Protection Act 2018 comes into effect, allowing victims of abuse to 10 days paid leave from work.

• April 1: Minimum wage rises to $17.70 from $16.50. This is due to increase again to $20 by 2021.

• April 1: Payday filing for tax purposes switches over, requiring employers to file pay details to IRD within two days of a person being paid.

• May 6: Further changes to Employment Relations Amendment Act 2018 come into force:
• 90-day trial period restricted to businesses with fewer than 20 employees
• Employers must offer employees set rest and meal breaks – number of breaks varies according to hours of work and rest breaks must be paid.

Proposed changes

• Hiring overseas workers: Work visa system to become employer-led, companies must be accredited to hire immigrants.

• Apprenticeship and vocational training: Industry Training Organisations will be disestablished and apprenticeships will be transferred to polytechnic institutions.

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