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Business speaks out: ‘Why we won’t hire more staff’

Adam Zuchetti
Adam Zuchetti
30 November 2018 9 minute readShare
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A business leader has opened up on the all-too-real factors preventing them from creating more jobs, highlighting the array of concerns employers have about Australia’s workplace regulations system.

An original report suggested that government rhetoric and government policies are at odds when it comes to job creation, with many SMEs actively curbing their own growth in a bid to reduce their exposure to the complex Fair Work Act and its various obligations on employers.

Commenting on the story, one reader broke down in detail the litany of concerns that make creating new jobs and taking on more staff virtually unfeasible for them and their business. The full list is republished below:

“When learning how to navigate the system, you are on your own.”

  1. Payroll tax – it would cost us an extra $12k for hiring that one extra worker.
  2. Workers Comp – over a certain figure and the business’ claims experience drives the cost, not the industry experience. One bad year and you get slammed – and a lot of claims are bogus.
  3. On Workers Comp – the system is complex and there is no easy explanation of how it is meant to work. The case officers change monthly, and the advice about reducing potential claims is minimal. When learning how to navigate the system, you are on your own. It stops one increasing sales and deliveries, because of the time required to research compliance.
  4. The rules on tax and super are messy when managing workers on compo, and it creates unnecessary costs until you understand them.
  5. Over 15 staff and we [are] getting to big company HR when you must remove staff, vs the Small Business Fair Dismissal Code.
  6. There is a lot of time and effort required to recruit reasonable staff from the ranks of marginal and low-paid workers available for basic jobs. [The] last three staff we fired were fired for (respectively) – stealing from the business, sleeping on the job, and failing to follow basic safety rules. And low-paid staff tend to come with a lot of baggage – drug issues, marital problems, financial problems, legal problems – their primary need is for a father first, then an employer.
  7. The more staff, the more legal fees – just to cover your backside.
  8. Small businesses are the victims of corruption, compared to larger players. It’s hard to complete when the dice are loaded: 
    • a. 85 per cent of respondents to a recent survey by Researchers with Griffith University and Transparency International said they believed some, most or all of the federal members of parliament were corrupt. That means big business has the inside track on government business, not small business;
    • b. About 45.6 per cent of respondents said they had witnessed or suspected officials having unexplained income beyond their public salary in the last 12 months. Again, the public are paying too much for corruptly awarded contracts, and small business is excluded.
    • c. Business customers are shifting responsibility for tenders and quotes from front line staff to procurement departments. In theory, this adds professionalism to the process; in practice, it strips the professional customer input from the purchase decision, and increases the risk of corruption, as all purchasing is now concentrated in the hands of a small number of people.
  9. Compliance becomes more complex the more customers you have. For example, rather than councils and corporates checking that contractor certificates and licences are current, they now farm it out to software firms. We have half a dozen new compliance companies this year, all asking for the same information on behalf of different customers - and each is charging us a new fee to collect that information (although we input it and maintain it- on their system). The rent seeking and compliance costs are non-trivial.
  10. Risk management is being shifted to small businesses. Contracts require you to accept all responsibility for any possible environmental or safety issues, even if it is the fault of the contract partner. Growing the business increases the exposure to litigation or contract partner mistakes exponentially, and the potential cost is existential.
  11. A lot of customers do not understand the laws and regulations by which they require small businesses to operate, and insist on compliance with imaginary process requirements or standards. Big companies can push back, not smaller ones.
  12. A lot of small businesses are owned by boomers. They need to sell soon, but young people cannot afford to buy a house, let alone a business. Most business finance is available for working capital, plant etc. There are few sources of finance for buying a business, and using equity from your home won’t work in a time of falling property values. Growing the business just makes it harder to sell.

“What should be one of the simplest measures has long proved one of the hardest to achieve – standardised, simple definitions.”

So what can be done to make job creation genuinely more attractive for SMEs?

Clearly, Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman, had it right when she said that the Fair Work Act is not “fit for purpose” — if workplace regulations actually hinder rather than help growth and job creation, then it’s fundamentally broken.

But as the above business leader’s concerns demonstrate, reforming the Fair Work Act is just one part of the problem. There are a number of moving parts (or cogs that should move but are sticking) in need of improvement to deliver the jobs, growth and prosperity the country needs for all of its citizens.

1. Scrap the tax on jobs

The most obvious thing is the abolition of payroll tax — or at the very least, for all states to significantly increase their thresholds so that it only applies to corporate Australia instead of capturing small and particularly medium-sized businesses.

In April, federal Treasury made the unusual step of releasing research into the economic impacts of payroll tax (a state issue), in which it claimed “an expected distortion caused by payroll tax relative to labour income tax has not been detected empirically”.

That assertion was angrily disputed by businesses, who said that the tax has a direct impact on the size of their workforces.

It did raise speculation, however, that the federal government may move to pressure or persuade the states and territories to replace the tax — but that idea was scotched as having “little chance” by a prominent tax expert and for the director of the ATO.

Among the suggestions from the business community for a workable solution have been to replace payroll tax with a technology tax, or restrict its application specifically to offshore jobs rather than Australian ones.

Both were met with a lukewarm response in terms of their effectiveness and ability to be implemented.

2. Make Worker’s Comp simpler and fairer

My Business regularly hears complaints about Workers Compensation rules and processes, with many businesses feeling that the level of complexity placed on employers, regardless of size, does not match the “ease” with which employees can submit claims.

One of the recurring themes also relates to enforcement of necessary safety measures. Employers are held liable for injuries sustained at work, and are required to pay if a worker (or, for that matter, a customer or other person on-site) is injured while carrying out their duties.

But employer concerns lie around dismissing or disciplining employees for not adhering to safety rules, with fears this leaves them exposed to claims of bullying or unfair dismissal: damned if they do, damned if they don’t.

At least part of the problem is that because one (workers’ compensation) is state-regulated, and the Fair Work Act is federal, the two effectively compete against, rather than work cohesively with, each other.

3. Government should pick up more of the slack

Consider the issue of sibling rivalry/dominance — the older sibling forces the smaller, younger one to do their homework for them, only to pass it off as their own and claim the credit.

All too often, SME leaders feel exactly like the younger sibling, undertaking a range of reporting and documentation on the government’s behalf, on everything from payroll to GST, well into the wee hours of the night. Reporting and documentation that makes no difference to them and their business, save for escaping penalties if it is not done on time.

While it may not feel like it sometimes, there are moves to do just this. The very creation of the ASBFEO, as a central point of advice, information, advocacy and point of contact for business owners and leaders, is one such example.

Single Touch Payroll, designed to digitise and streamline the process of payroll data reporting to the ATO, is another. (The ATO is trying to reassure small and microbusinesses that they will not be forced onto payroll software to meet this change.)

But, of course, there is more that could be done. Following the leadership spill in August that saw Scott Morrison replace Malcolm Turnbull as prime minister, small business was reintroduced into federal cabinet, giving the issues facing small business more prominence and attention within the government. Hopefully, this will remain the case with whoever forms government after the election, likely to be held in May 2019.

4. End the ‘bank of SME’

One factor being addressed with quite a degree of earnest is the problem of SMEs being used as banks — thanks to poor payment terms and unfair contracts that place a disproportionate burden on them.

Measures are currently being undertaken in a bid to address this: an inquiry investigating the issue of late payments is due to report to the federal government shortly, in which offenders will be named and shamed for withholding payments for legitimate invoices.

The federal government and NSW government have respectively undertaken plans to formalise the payment of all small business invoices within 20 days and five days, respectively, and other state and territory governments will be pressured into following suit.

Plans were also recently announced to deny corporations the right to tender for future government contracts if they have a poor record of making prompt payment of invoices to SMEs.

The ACCC is also pushing for unfair contract rules to be tightened quite strongly, making it illegal for large corporations to include terms that shift an unfair portion of burden onto SME suppliers, and backing that up with hefty penalties.

5. Create standardised definitions

What should be one of the simplest measures has long proved one of the hardest to achieve — standardised, simple definitions that SMEs can work with, rather than being left to try and guess.

The definition of a contractor versus an employee has huge ramifications, yet definitions vary or are open to a great deal of interpretation between the tax office, employment regulators and other government bodies.

Same too for what constitutes a casual worker, which is currently before the courts.

Then there is the multitude of discrepancies between what separates a small business from a medium one. Is it staff or turnover? Or both? And what level is that set at?

Simple, standard definitions would remove a huge and unnecessary burden on business leaders, who currently are forced to try and correctly guess which definition is appropriate for whatever rule or regulator or organisation they are dealing with at that particular time.

6. SMEs need to speak up

Criticising politicians for being out of touch may be something of a national sport, but all MPs and senators maintain constituency offices for a reason: to receive feedback from their local communities.

As such, business leaders can help themselves by proactively voicing their concerns, their problems and their proposed solutions directly with policymakers. That means meeting with, or writing to, the local MP and senator, state and federal, to inform them of the real-world implications that current or proposed policies have on the business.

The more businesses that do so, the more detail and clarity that politicians have as to the size and scale of a problem (as well as a greater sense of urgency to do something about it or face the wrath of their constituents).

The same goes with reaching out to the relevant ombudsman, again at federal and state/territory levels, and providing detailed feedback to regulators, the ATO and other bodies.

Doing so is more relevant now than ever, with a federal election (and the NSW state election) just months away, meaning politicians and political candidates are more eager than ever to listen to constituents and win themselves votes.

Business speaks out: ‘Why we won’t hire more staff’
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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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