Can SMEs Afford Our Enlightened Labour Laws?

The past few months have seen Parliament dealing with some rather radical concepts. The Health & Safety in Employment Amendment Act, which came into force May 5 2003, the Holidays Bill and Holidays (Four Weeks Annual Leave) Amendment Bill are all infused with common theme; recognition of the link between employees’ physical and psychological health and their workplace performance.
Together these three legislative initiatives display the most sophisticated and holistic understanding of the concept of worker productivity shown by New Zealand government in the past 30 years. They all recognise that the nature of modern work has changed and that, as result of this, the employee is vulnerable to different types of risk – mental rather than physical, cumulative rather than isolated, multi-causal rather than mono-causal.
The Health & Safety in Employment Amendment Act specifically recognises employers’ responsibility to manage their employees’ exposure to stress and fatigue, while the Holidays Bill and the Holidays Amendment Bill each identify the restorative value of time away from the workplace as being of different character (and greater importance) than other rewards such as pay.
The Health & Safety in Employment Amendment Act explicitly recognises mental health conditions as workplace hazard. The Act provides the first legislative recognition that employers can control the level of stress and fatigue of their employees and that they have responsibility to do so and to eliminate or minimise hazards likely to trigger this response in the average employee.
The Holidays Bill was introduced to the House on 18 February 2003 by Labour Minister Margaret Wilson following report from joint union-employer advisory group. It provides for employees to receive minimum payment of time and half for every public holiday worked in addition to day off in lieu. The Bill also strengthens special leave entitlements (incorporating sick, domestic and bereavement leave), including the ability to accumulate special leave over three-year period, and places clear restrictions on the ability of employers to substitute time off for money in ‘pay-as-you-go’ type arrangements. The Bill increases maximum penalties for employers who do not comply with the proposed minimum standards including the imposition of maximum $1000 day penalty for continuing offences. The Bill does not propose changes to the current minimum annual leave period of three weeks.
In November last year the Holidays Amendment Bill was introduced to the House, as Members Bill, by Matt Robson, the deputy leader of the Progressive Coalition party. It proposes an increase in minimum annual leave entitlements from three to four weeks. Robson supports his proposal by quoting the minimum leave entitlements of other countries, particularly Europe, where employees receive four to six weeks annual leave. He compares this to the New Zealand situation where the average leave entitlement across all industries is 15.6 days.
There are several common threads running through these legislative initiatives. In particular they appear to show respect for the role of work in the full context of an employee’s life and to explicitly recognise the value of family and recreational commitments. They accommodate an understanding of the reality of modern work where economic pressures created by such things as short-term performance-based contracts and technological advancements such as cell phones and email result in ‘bleeding’ between work life and home life. Each of these initiatives seeks to redress this situation in favour of the employee.
Does this signal complete change in direction? In these energy conscious times are we moving from darkness into light? Are all of these changes viable within the New Zealand business reality? No employer will deny that healthy, rested employees are productive employees. In most instances the key to business success lies in being able to attract and retain creative, motivated and committed employees. The legislative changes described above aim to achieve this objective but the cost may be too high for the stalwart of New Zealand business – the small to medium sized enterprise (SME).
SMEs make up the majority of all private sector enterprises in New Zealand – 86.9 percent of enterprises employ fewer than six full-time equivalent staff and 97.3 percent of enterprises employ less than 20 staff members (based on Business Demographic Statistics 2001). Given the fact that this data is only based on enterprises with GST expenses of greater than $30,000 per year, and parts of the agriculture industry – the number and contribution of SMEs to the New Zealand economy is likely to be even greater than the figures stated. If sales and other income is regarded as the measure of output – SMEs comprise 39 percent of the New Zealand economy.
However, while 42.4 percent of the total New Zealand workforce work for SMEs, these employees seems to be monetarily worse off than their counterparts working for larger enterprises. On average the annual salary of full-time employee at firm employing fewer than six workers was around $12,000 in 2001 compared with more than $40,000 for those working in enterprises employing between 50 and 99 workers.
This seems to paint picture of miserly SME owners who are unwilling to treat their staff well. Comparison of the average real profit per full-time worker seems to confirm this suspicion. SME owners do indeed get greater leverage from the productivity of their workers than owners of larger enterprises. The average profit (before tax) per full-time employee for firms employing less than six workers was $28,000 per year, whereas for firms employing between 50 and 99 employees the figure did not even reach $5000 per year.
This rosy picture is however clouded by sombre footnote when business survival rates are factored into the equation. Of enterprises born in 1995 employing fewer than six employees, only 31 percent still existed in 2001. In fact 28 percent had ceased to operate within the first year (1996). This compares with survival rate of 50 percent for enterprises employing fewer than 100 workers, and 70 percent for enterprises employing more than 100 workers over the same period. When this entire calculation is completed then it is evident that most small enterprise owners are surviving by the seat of their pants rather than living the high life from the efforts of their underpaid staff.
The strain added to small enterprise owners of proposals such as the Holidays Amendment Bill is easily seen. For an enterprise employing four people this legislation in effect adds one month of paid wages to the wage bill, or calculates to the loss of one month of one of their worker’s productivity. With the smaller margins in small enterprises (the average annual net profit for enterprises employing fewer than five employees was only $48,000 compared to $6.5 million for enterprises employing 100 or more in 2001), such an extra expense may further decrease the hourly rate paid to employees, force redundancies or lead to further rise in small enterprise fatality.
Given the fact that employees working in small enterprises are already paid less on average than those in larger enterprises the first option is likely to further deepen the divide. The second option is even more alarming – our unemployment rate is currently very positive in the five percent range – due in large part to jobs created in the SME sector and to government incentives for the unemployed to become self-employed. These gains may well be lost if legislative changes are not cautiously made.
The Health & Safety in Employment Amendment Act is further interesting demand placed on employers, which might not in reality be that easy to implement where it is really needed. stressed worker is probably an unproductive worker. small enterprise owner may also in many instances be better placed to recognise stressed employees, give