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SMEs capping growth to reduce IR burden

Adam Zuchetti
Adam Zuchetti
22 November 2018 6 minute readShare
Trying to stop, cut, growth, cap, limiting

Many businesses are foregoing growth opportunities and job creation not from lack of finance or opportunities, but because the regulatory burden is “too complex, too difficult and too dangerous”.

Despite governments of all persuasions labelling small business “the engine room of the economy”, it appears many businesses – particularly small businesses – are actively holding back their own growth simply because of fears about workplace laws.

The startling scenario where businesses are actively putting the brakes on growth has arisen in response to the government’s plan to create a $2 billion securitisation fund to boost lending to SMEs.

Commenting on the news, one My Business reader suggested the government “make employment laws fairer and easier to navigate for small business before they try and assist them to grow”.

In an impassioned response, the reader suggested that they and many of their peers are actively capping growth specifically to reduce the burden of red tape, workplace laws and associated costs.

“I know I have capped my staff levels at 11 and will never hit the magic number 15 and [lose] small business status and the few concessions this brings,” the reader said.

“Our business could grow substantially, quickly and quite easily if I started to push it. However, just dealing with ever changing employment laws makes this not even worth the consideration.

“I think it’s an absolute tragedy when people with vision, ability, drive and extreme work ethic decide it’s not worth the effort and don’t continue to build a business that gives opportunity for others for not just employment, but also to train and give them skills they otherwise wouldn’t get.”

They went on to conclude: “I know we are not alone in thinking this; so many business owners think the same and many like us cap ourselves, which is unfortunate as there are a lot of jobs able to be created.”

“We don’t employ anybody, because we simply believe it’s too complex, too difficult and too dangerous.”

Sentiment is ‘really, really common’: Ombudsman

Far from being an isolated incident, Kate Carnell – the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) – said that such sentiment is “really, really common”.

Speaking to My Business on the matter, Ms Carnell said: “Around Australia… I get people who have said ‘look, we’ve just made the call not to employ, to keep our employment numbers down, because it’s all just too hard and all too scary’.

“The ATO has a small business stewardship consultation group, and one of the small business operators on that said a couple of months ago, when we were talking about some of these issues, she said, ‘Well, the reality is my partner and I are a small business and we don’t employ anybody, because we simply believe it’s too complex, too difficult and too dangerous. When we’ve got extra work, we contract it out and we have chosen to stay small, because we are just worried that if we employ, we’ll get caught in a very complex system and get it wrong and then we’ll be in trouble’.”

“The Fair Work Act is 960 sections, it’s a quarter of a million words, and that’s before you even get to the 122 different awards.”

Truth or misconception?

Asked whether such beliefs are entirely fair and accurate or are based on misconceptions about actual workplace regulations and proposals, Ms Carnell suggested that it could be a bit of both.

She cited the fact that over 40 per cent of claims to the Fair Work Commission relate to unfair dismissal, as well as the legal uncertainties surrounding casual worker entitlements and the distinction between casual, contract and permanent, as part of the cause for these current fears.

“I think the Queensland case really concerned people because of the backpay – six years’ worth of backpay. But look, that was a big business, and that sort of scenario I don’t believe is something that small businesses should be too concerned about.

“That said, it is just another level of complexity, and if you get it wrong and the Fair Work Commission or court determines that somebody you’ve got on a contract is actually a full-time employee, then there is now precedent to suggest that you could be asked to pay a chunk of payment from the past, not just going forward.

“That’s really scary for small businesses, because that can send you over the edge.”

Ms Carnell said that both the Fair Work Commission and the Fair Work Ombudsman are “working really hard” to provide information and simplify their dealings to benefit smaller businesses.

She conceded that their role as regulators does instil some negativity about dealing with them. However, she said it is the law itself – which regulators have a duty to enforce – which is overly complex.

“The Fair Work Act is 960 sections, it’s a quarter of a million words, and that’s before you even get to the 122 different awards that exist in the system. That’s pretty daunting.

“Small business don’t have HR experts or legal experts; they regularly do the wages themselves, at 11 o’clock at night usually; they don’t have experts on staff to manage the industrial relations system, so they need to be able to do it themselves and that can be quite daunting in such a complex area.”

Complex regulations ‘not fit for purpose’

Ms Carnell said that fundamentally, a major shift is needed to take place in the way all manner of policies are drafted.

“When government, and I mean governments at all levels and [regulatory bodies], think about business, they often think big business – or at least middle to big business,” she said.

“Businesses that have got legal advice and HR areas and they’ve got people to do the wages and so on, and they forget that 99 per cent of small businesses turnover less than $10 million – heavens, 97 per cent have fewer than 20 employees.

“So when we’re putting together regulations, requirements, legislation and so on, thinking about it from the perspective of a business with less than 20 employees [is crucial].

“We need to understand what most businesses look like: they’re very little, they don’t have in-house expertise.”

Ms Carnell added: “It’s not even the 20-employee [businesses]: it’s the microbusinesses… with less than five that we’ve got to put our regulation together around.”

“If it’s not possible for them, while running their families and all of the other things they have to do, to understand it, then it needs to be re-thought, because it’s simply not fit for purpose. It’s big vision, I know, but if we start thinking this way… I think we will end up with a very different approach to regulation and legislation generally.”

“There is a lot of help out there, it’s just not in one place.”

What can be done in the shorter term?

Ms Carnell said that a short-term priority should be the creation of a simple checklist for business leaders to follow in relation to the Fair Work Act, and that regulators such as the ATO do the same.

“[We need] easy-to-understand mechanisms for small businesses to know that ‘if I follow this, if I do this, I’m safe’,” she said.

“That is possible… I’m not saying it is easy, but it is certainly the way we’ve got to go so small businesses can be confident that if they’re doing things on this page, they won’t be prosecuted.”

While such responsibilities lie with the government and regulators, business owners must of course deal with the current frameworks in the here and now. And to do that, Ms Carnell urged business leaders to not feel like they have to know all and do all, and instead to reach out for assistance.

“The answer is to seek help,” she said.

“There’s a range of different places to do that, including my office. If you’re not confident – and you don’t need to be – accept that the system is too complex and no normal mortal can understand it. So if you’ve got a question, seek help: it could be from your accountant or from another type of trusted adviser. If that doesn’t work for you, come to an office like ours or a small business commissioner.

“There is a lot of help out there, it’s just not in one place… so you need someone to ask.”

SMEs capping growth to reduce IR burden
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Adam Zuchetti
Adam Zuchetti

Adam Zuchetti is the former editor of MyBusiness and a senior freelance media professional, specialising in the fields of business, personal finance and property. In 2020, he also embarked on his own business journey – inspired in part by the entrepreneurs and founders he had met through his journalistic work – with the launch of customised pet gifting and subscription service Paws N’ All.

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