Small businesses shocked to discover how much wages and leave changes will cost them.
More sick days, another public holiday and higher minimum wages – all this could be the last straw for some small businesses, writes Marta Steeman.
Businesses are facing thousands of dollars in extra costs as the Government moves to implement promises to increase sick days, the minimum wage and introduce another public holiday next year.
The Sunday Star-Times asked several SMEs to calculate the costs for their business, and they were surprised at the results after crunching the numbers.
They are reluctant to put up prices because of competition and say the extra costs could stop them hiring more staff. All expected reduced profitability.
Co-owner of Te Awamutu manufacturer Fuel Storage, Regan McFall, said an across-the-board 5.8 per cent increase in the salaries of the company’s 40 staff, in line with the minimum wage rise of 5.8 per cent to $20 an hour next year would cost Fuel Storage $140,000.
But it would not be raising staff wages based on the minimum wage. All its employees were above the minimum. It was hard getting the skilled engineering and welding staff for its business, making fuel storage tanks large and small, so it paid above market rates to keep staff.
Fuel Storage is one of the biggest employers in Te Awamutu. Its wages bill is about $11,500 a day and if all staff took the extra five sick days, proposed to rise from five now to 10 next year, it would cost $57,500 a year and the company would lose about $260,000 in revenue.
The new public holiday, Matariki, the Ma¯ori New Year celebration, would cost another $11,500 in wages with a loss of revenue of almost $53,000.
‘‘That’s quite scary to look at, to be honest. I had to double-check it,’’ McFall said.
If he raised prices, that would flow through to motorists eventually because his customers were the likes of Allied Petroleum and Z Energy.
His biggest competitor imports all tanks from China and employs only a few staff. McFall, whose employees are all locals, questioned where the incentives were for businesses to hire locally when more costs were being imposed.
Nationwide tyre retailer Hyper Drive calculates the extra cost of the three measures at $168,000 a year.
Owner Simon Furness said it was significant and equated to an 8.2 per cent increase in Hyper Drive’s wages bill. The company’s turnover was about $35 million and it had 35 staff.
If the 5.8 per cent rise in the minimum wage was applied to all Hyper Drive staff pay, with this new bottom benchmark pushing up wages, that would cost an extra $120,000 a year.
The five extra sick days would equate to an extra $40,000 and the extra public holiday another $8000, taking the total to $168,000.
‘‘We’ve got to either sell more product or reduce costs,’’ he said. While there was the potential to raise prices, it was not that simple. The business was operating in a highly competitive market. The new measures would definitely reduce profits.
New beauty bar company Ethique says the measures will not cost it anything further because it already has them in place. Founder Brianne West said all new staff started on $28.50 an hour and progressed from there, and the company was living-wage accredited.
‘‘I am very pro the addition of the holiday for Matariki and for us this is a minimal additional cost.’’
Staff got their birthdays off, Ethique had unlimited sick leave, and it had other forms of leave.
But she raised concerns about the impact of the extra costs on some small businesses.
‘‘A lot of business owners are doing it seriously tough right now, particularly those with small, local businesses . . . and adding more pressure may push some over the edge. I am not convinced that placing these sorts of requirements on all business owners right now is sensible or fair,’’ West said.
Blenheim shoe retailer Keith Sandford said the extra cost could be ‘‘the straw that breaks the camel’s back’’ for a lot of small retailers and small businesses, especially those who employed part-timers. He and his wife ran Cresswells Shoes with three part-time staff. It not only sold shoes but did shoe repairs and alterations for people with foot problems, and cut keys.
Small business were run by ‘‘ordinary people’’ who could pay for the extra costs only if they put up prices or took lower wages themselves, because profits would shrink.
‘‘Our wages are actually less than what our
‘‘I am not convinced that placing these sorts of requirements on all business owners right now is sensible or fair.’’ Brianne West Founder of beauty bar company Ethique
employees get. At the end of the day we are not rich wealthy people with a bucket of money to pay out this.’’
The worst-case scenario for retailers and small business was employing a part-timer for one day a week. That person would become entitled to 10 sick days, 12 statutory holidays including the new holiday and four days holiday, all paid. That was 26 days of their 52 days working a year.
To cover those 26 days the company would need to employ another part-timer. The new sick leave should be changed to be proportionate to the hours employees worked, Sandford said, like annual leave was.
Taupo-based lighting distributor Pure LED chief executive Daniel Deere said that if all seven employees took 10 sick days a year the additional cost would be about $25,000. That did not take into account sales staff not selling products during that time.
One extra public holiday would add another $25,000 cost because the business was paying salaries and making no sales. Overall, the cost to Pure LED was an additional $45,000 a year.
His staff were already paid above the minimum. Even though most people would not take advantage of the extra sick days, he preferred the Government to leave the decision to businesses.
‘‘It is a significant cost and especially the ways things are and the uncertainty out there I guess you don’t want to be raising the costs of business. It did surprise us actually when we ran the numbers that this can be quite expensive for us.’’