Stirring the animal spirits of SMEs:
Workplace regulations on the Government’s agenda
From the Holidays Act and ‘Esops’ to personal grievances and contracting: Here’s what to expect from the business reforms still in the pipeline. By
The first few months of the coalition Government saw some quick wins for business owners and wrenching losses for the union movement, with the scrapping of Fair Pay Agreements and the reintroduction of 90-day trials for new employees.
Some of what remains on the Government’s “to do” list when it comes to reshaping business regulation may be just as contentious.
Simon Bridges, chief executive of the Auckland Chamber of Commerce, says there is “a real need for the Government to stir the animal spirits” of small and medium-sized businesses.
“Some people think economies are a bit like computers and if you ‘do this input in, you’ll get this output’. I think the sentiment and emotional part of SMEs is really important.”
Bridges hopes the Government can capture the imagination of business owners so they have a sense there is some “light coming” and that ministers have their back.
But concerns remain in some quarters that in some cases it may be preparing to jump at shadows.
Holidays Act: A complex law that most agree needs attention
Workplace Relations Minister Brooke van Velden has said that reforming the 20 year-old Holidays Act, which sets out employers’ obligations with regard to holiday, sickness and bereavement pay, is one of her top priorities.
The law is so complex that, “even with the best intentions”, many employers had fallen foul of the rules, she told the Auckland Business Chamber in March.
Employees have a minimum entitlement to four weeks’ annual paid leave after a year in employment. But it can be hard to work out what that means if people don’t always work standard hours for uniform pay.
Hundreds of millions of dollars have been paid out to hundreds of thousands of workers because of botches where workers were underpaid, and there appears almost universal agreement that something needs to be done.
Van Velden has promised the Government will set out its proposals “within months”.
Unions are suspicious that at the same time as simplifying payment rules and making sure these can be easily accommodated by payroll software systems, the Government may take the opportunity to reduce existing statutory entitlements.
ACT has, for example, been keen to drop the public holiday on January 2.
Council of Trade Unions president Richard Wagstaff says given what he describes as van Velden’s “fixation with simplicity”, it is “quite possible she will look to simplify even if it means reducing entitlements for workers”.
“Worker entitlements in the Holidays Act must be protected,” he says.
Marie Wisker, a partner at law firm Chapman Tripp, expects the Government to take a “completely fresh look” at options for reform, rather than pick up from where a review begun by the former government left off.
Holiday entitlements could be rejigged to require hours off for hours worked, instead of weeks off for weeks worked, which would be easier to administer, she says.
Bridges says the law needs a tidy-up and modernisation and anything that provides more flexibility has got to be good for SMEs “and good for employees as well because we know unemployment is tracking up”.
At least a temporary reduction in some entitlements “might not be a silly idea”, he says.
But Wisker says she would be surprised if the Government suggested major changes to core entitlements, such as the overall level of holiday or sick leave. “What I think they will do is look to simplify how you calculate and pay those entitlements.”
Van Velden has sought advice on limiting employees’ ability to lodge personal grievance claims, in what would be a bitter pill for advocates of workers’ rights.
“Personal grievances are intended to protect employees from unfair employer behaviour, something we know happens, but I don’t consider we currently have the balance right,” van Velden has said.
She has argued that employers can be dragged through the personal-grievance process by vexatious employees, leading to “significant legal costs and reputational damage”.
Among the options she has asked officials to investigate are removing the right for employees earning more than a certain income to lodge personal grievances and curtailing the circumstances under which employees could secure payouts.
Wisker says there are some clues as to what the former could look like.
She notes National MP Scott Simpson drafted a private member’s bill in 2016 that would have allowed employees earning more than $150,000 a year and their employers to opt out of the personal grievance system.
In Australia, employees who earn more than A$167,500 (NZ$184,675) a year cannot initiate a claim for unfair dismissal against their employer, she also notes.
But Wisker says she is confused by the suggestion that employees who were found to be partly at fault in employment disputes might see all rights to compensation removed, so it would be good to see the detail of what else the Government might suggest.
“The system already takes into account fault by the employee when setting awards and I think that system work well.”
Wagstaff says that “as the minister only seems to talk to employers and not unions, we worry she will look to reduce rights to natural justice and fair process for workers, shielding poor employers from the consequences of their own actions”.
Some of the minister’s comments are puzzling, he says. “She seems to be worried about workers receiving compensation where their case is unsubstantial or vexatious.
“This simply does not happen; a worker with a bad case loses their case, and even if they won, the Employment Relations Authority already has the power to make significant deductions for ‘contribution’.”
Bridges says the Auckland Business Chamber is supportive of the broad direction van Velden is taking, but voices caution both on capping access to grievance claims and curtailing rights to payouts.
Any proposals should be thrashed out well at a select committee, he says. “They will get a range of submissions that will be
worth hearing on that issue.”
He says he knows business people who “see some real fish-hooks in the both of those issues”, as well as others who would support reforms.
Contracting isn’t a dirty word – in the private sector at least
Not so much a change coming, but an Employment Court ruling in 2022 that four Uber drivers should have the same rights as employees opened up the possibility that as many as 150,000 contractors, from CourierPost drivers and tradies to cleaners and telecommunications technicians, could be entitled to similar rights.
The Employment Court ruling, which is being appealed, aligned with a law change clarifying contractors’ rights that was initially proposed by the former government but which it sidelined when Chris Hipkins put the Labour government into a lower gear at the start of 2023.
Van Velden has signalled the Government will draw a line under the matter by stipulating that workers who explicitly agree to a contracting arrangement have “certainty about the nature of that relationship”.
They wouldn’t, for example, be able to demand holiday pay or sick leave or initiate personal grievances.
Businesses have been increasingly keen in recent decades to outsource work to contractors, and the legal clarity the Government promises to provide to them could be expected to accelerate that trend.
Wagstaff says van Velden should be concerned by “the real issue”, which he describes as the situation where “genuine employees are deliberately mis-classified as contractors so employers can avoid affording them their basic rights and protections”.
Sharing the pie, with a cherry of top?
It doesn’t appear to be locked into the Government’s official work programme, but there has been speculation it intends to reform the tax rules surrounding employee share option schemes, or so-called Esops. That could be as part of a wider suite of reforms hinted at by the Government, which has signalled a desire to ensure businesses have improved access to capital.
The objective of any reforms would be to make it simpler and more attractive from a tax perspective for highly skilled employees – in technology businesses, for example – to accept share options in lieu of cash for a portion of their pay.
As it stands, the value of share options granted to employees is taxed at the point they are converted to shares, which means taxing unrealised gains on their value if they aren’t immediately sold.
National’s candidate in Central Auckland in last October’s election, Mahesh Muralidhar, has been lobbying for reforms. His view is that tax should apply only when shares are sold, and that should be at a lesser rate than employees’ top income-tax rate, to reward those willing to put in “sweat and tears” and take a risk.
“Until then, ‘thank you so much for taking the punt, thank you for trying to make the world a better place’,” he says.
Also in the mix
The Government has promised public consultations on reform of the Health and Safety at Work Act.
It is clear it wants to make it easier for businesses to know what they need to do to comply with regulations, but it’s less certain what that might mean in practice.
Wagstaff says there has been a “drift away” from a strong regulator with independent enforcement powers, towards “putting additional responsibility on to individual workers”, which he says the CTU has serious concerns about.
A loosening of some controls in the Overseas Investment Act is also on the cards.
Pay transparency reforms proposed by Labour which would have obliged larger businesses to report on gender pay gaps and pay differences between ethnic groups are on the back-burner.
They are not one of van Velden’s priorities, she tells The Post.
Prime Minister Christopher Luxon has said the Government will “initiate the first regulatory sector review” by the end of June.
Bridges says construction, retail and hospitality are possible choices as they face hard times at the moment. Farming would also seem a candidate.
He favours a “forward plan of regulatory busting” by Regulation Minister David Seymour in his new department, setting out what it might achieve in 18 months.
That could be “confidence-building” for businesses that were finding it tough now and give them some hope, he says.