Compliance Costs Show Case For Shelving Bill

Employment Bill’s Massive Compliance Costs Reinforce Case For Shelving

If Government had taken the obvious precaution of sending the Employment Relations Law Reform Bill to its small-business advisory group to “test” it for compliance costs before its introduction to Parliament, the Bill would never have seen the light of day.

Predicting this, Chamber of Commerce chief executive Michael Barnett, said a simple “growth lens” test conducted by the Chamber of the time and cost associated with the measures in the Bill that business are required to comply with came up with startling results:

A typical business employing 10 or more people will face costs between $20,000 and $36,000 to comply with the Bill’s provisions.

A minimum of 15-to-20 days of employer-staff time inputs will be required for a small-medium business to comply, and much more for larger companies.

Given that there are about 295,000 businesses registered with Statistics New Zealand, the Bill’s compliance cost to the economy potentially runs into many millions of dollars.

“I can’t accept that a government that has for three years trumpeted the case for business increasing its productivity and for encouraging more small-medium businesses to get into exporting, will allow the passage of this Bill into law without undertaking some major surgery,” said Mr Barnett.

The Chamber submission sets out a table of typical costs and time businesses will face to comply with the 11 prescribed activity areas in the Bill. These are set out below and can also be viewed at www.b-vital.com /submissions.

It is ironic that just as other Government agencies such as Inland Revenue are starting to respond to persistent calls by the Chamber to simplify paper work compliance requirements, a new raft of compliance requirements are being launched that will add significantly to the compliance time-cost of doing business.

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Clearly businesses face significant compliance “time and cost” in their efforts to be “good” lawful employers by meeting the provisions of the Bill – how fair to the employer and beneficial to the economy is this?

For example, every business faces rewriting employment contracts to comply with the Bill. The contracts will in future have to be prepared in a specific format. The chart below indicates that a typical medium-sized business will face 3-5 days of work and a basic cost of between $1000 and $4000 to meet the cost of reviewing employment documents and procedures in accordance with the proposed legislation. As collective bargaining and the other measures kick-in, so will the costs.

The Chamber research identifies some 11 activities that individual businesses will be required to address:
Activity required Estimated employer time input Estimated costs of external consultants / advisors
Review and amend existing employment documentation and systems to ensure compliance with requirements of bill. 3-5 days. $1,500 - $4,000 plus GST and disbursements.
Additional time required to comply with additional requirements when recruiting staff on IEAs including consultation with unions where there is a CEA. At least 2-3 hours per recruitment. When external advice required, $500-$1,000.
Requirement to participate in additional collective bargaining to satisfy obligations to conclude collective agreement 'unless there is a genuine reason not to' in situations where parties have significant disagreement. 3 plus days per negotiation (probably 2 yearly). When external advisors engaged, at least $3,000 - $5,000. Possibly significantly more.
Participation in facilitated collective bargaining in Employment Relations Authority. At least 2 days on average. If advisors engaged – at least $1,000 - $1,500 per day.
Arrange deductions of union fees. 20 minutes – 30 minutes per deduction. Inclusive of system set up
Compliance with continuity of employment provisions in new Part 6A Subpart 1, plus development of systems to comply. At least 2-3 days on average. Probably more. $3,000 - $5,000 to set up and implement systems for a business involving less than 20 staff.
Compliance with requirements for new employer to bargain for redundancy with transferring employers under Part 6A Subpart 1 and if necessary make application to ERA. 2-3 days. $5,000 plus.
$10,000 plus if application to ERA to fix redundancy compensation
Negotiation of employment protection provisions for non-schedule A staff. 1 day. $1,000 - $2,000.
Obtaining and implementing guidance on, and process for compliance with, new test of justification (clause 37). 1 day. $1,500 - $3,000.
Obtaining external advice on application of new test of justification (clause 37), in particular disciplinary / competency situations (i.e. when taking formal steps re employee incompetence or misconduct). ½ day. $1,000 - $2,000.
Responding to equal pay query – taking advice re same, assembling information, providing advice to employee. At least ½ day. $1,500 - $3,000.
Note: The figures have been set conservatively, based on an indication to the Chamber of how much time businesses spend with their advisers to determine these matters and the typical costs involved.

The Chamber’s submission on the Bill strongly recommends that the Committee initiate a searching and comprehensive compliance cost-benefit assessment of the Bill’s impact on economic performance before it is amended and returned to the House.

Mr Barnett: “A disturbing feature of these costs is the reinforcement they give to the impression that the Bill is promoting a "them and us" workplace society:

Unions and employees are paid for their contribution to meeting the requirements of the Bill, employers are not!

“That’s not fair, and in terms of meeting the object to assist economic growth, stupid.”

If the Government wisdom is to persist with the Bill and theses measures, Mr Barnett suggests that as a mark of good faith towards its belief in the importance of these provisions to improving New Zealand’s industrial relations and the business environment, the Government should consider paying the employer costs, as well as those of unions.

The Submission makes the point: If Government were to put the Bill under compliance scrutiny, it would: Test the true benefit-cost of the Bill’s proposals to the economy; Encourage Government to become fully familiar with the complexity of the enacted legislation and its cost to business; Highlight the “price” business is being asked to carry to meet Government’s intention in respect of promoting unions and imposing collective bargaining – for no clear economic or social gain;

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Reinforce the vulnerability of SMEs being diverted from staying focused on growing their businesses as a result of the imposition of Government measures and the duty to comply.

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