Red Tape And Compliance Costs Stifle Growth….

12 September 2004

Media release

Red Tape And Compliance Costs Clearly Stifle Business Growth….

Small businesses spend as much unproductive time addressing company tax and GST as larger companies.

At the same time, many small-medium businesses (SMEs) appear to be passing up growth opportunities because of the inability of the owners to delegate red tape and compliance tasks, to allow them to concentrate on building up the productive side of the business.

These are among findings of a red tape survey conducted by the Auckland, Wellington and Otago Chambers of Commerce which drew ALMOST 1000 responses from members in those regions.

The survey asks 14 questions on the time businesses spend on red tape and compliance issues, including payroll, human resources, employment contracts, tax, insurance, dismissal, licences and superannuation.

Eight percent of the respondents said they were self employed and 37% indicated they employ 5 or less. Thirty-two percent (32%) said they employed between 6-to-20 staff, 16% employ 21-to-99 staff and 6% employed 100 or more staff.

Commenting, Auckland Chamber chief executive Michael Barnett said that the survey reinforced long-standing concerns that SMEs are being held back from growing into larger companies because of the time-cost associated with red tape and meeting compliance.

He noted that this is the second year that the Chamber has conducted the survey, and the findings were remarkably similar. This indicated that little practical progress had been made over the last 12 months by compliance authorities such as Inland Revenue to improve services in ways that reduce compliance costs.

Two major concerns stood out:

- The amount of time SMEs spent on company tax and GST issues was the same for most businesses regardless of size. It demonstrated that hiring more staff was not of itself a factor in increasing compliance costs in meeting these responsibilities.

- While most firms experience few problems addressing issues such as dismissal, renewing insurance and OSH requirement, there is a number who do spend considerable time which appears to be out of all proportion to the size of their business. For example, 2% of firms employing between 1-and-2 staff indicated that they had spent more than 50 hours addressing dismissal issues.

Overall the survey shows that when small owner-operated businesses build staff numbers to 5-or-6 employees red tape and compliance costs increase significantly, so the owner operator tends to consolidate the business at that level rather than develop a strategy to increase productivity in ways that recover these costs and enable further growth.

Mr Barnett said the survey was modelled on an Australian Chamber example conducted in most States, and which had been used by the Australian Federal Ministry of Small Business to help determine where SMEs are spending a disproportionate time and cost complying with red tape to that extent the business’ focus had become one of ‘just keeping the business ticking over’ rather staying focused on developing capacity, and increasing market share and profitability.

By breaking down each area of red tape, the survey shows exactly where businesses are spending disproportionate time and cost complying with red tape.

Main findings included:

- Staff employed to do the payroll: While 100% of owner-operator businesses with no staff and 63% of businesses employing between 1-to-5 staff do their own payroll, as soon as staff number reach 6 or above, then a specialist payroll staff tends to be employed. For firms with between 6-20 staff, in 31% of the 855 respondents the business owner still did the pay roll, but 69% either outsourced or employed staff for the task.

- Staff employed on human resource issues: Similar to last year’s findings, employers in businesses with 5 or less staff tend to address all the human resource issues. However, when staff number get to 6 or above, then most firms employ a specialist human resource person, often on a part-time basis.

- Staff dealing with GST/FBT issues: While 77% of sole operators do their own, 23% said they either outsourced or employed a part timer for the work. In contrast, in businesses employing 100-999 staff, just 7% of GST/FBT tasks were undertaken by the owner, while 60% employed full time staff for the tasks.

- Time spend on PAYE: seventy-five percent (75%) of businesses employing between 1-5 staff indicated they spend between 1-and-5 hours a fortnight on this item, while 40% of firms employing 100 or more staff spent the same amount of time as the SME on the item. However, 13% of the 100+ staff group indicate that they spent more than 15 hours calculating GST and FBT issues in the fortnight of the survey.

- Time spent on OSH compliance: Exactly as last year’s survey, 53% of respondents indicated they had spent no time addressing OSH issues in the past fortnight. However, of the 47% who had, 15% spent more than 5 hours complying including 4% who spent more than 15 hours on the issue.

- Time spent dealing with unfair dismissal claims: Also similar to last year’s findings, 69% of respondents indicated that they had no unfair dismissal case in the previous 12 months. However, among the balance 17% had spent more than 15 hours including 5% who spent more than 50 hours addressing unfair dismissal claims.

- Time spent on insurance issues: Also similar to last year’s findings, 89% said they had spent up to 15 hours on the issue. Exactly as last year, just 3% of respondents said they had no insurance cover.

- Time spent on company tax matters: Similar to last year’s findings, there was an even spread of between 16-to-30 hours between all businesses, both SMEs and those with 100+ staff. For example, 17% of self-employed respondents with no employees, 25% of respondents with a staff of 1-5, 19% of firms employing 6-20 staff, 17% for firms of 21-99 staff and 29% firms employing 100-plus all indicated that they spent between 16 and 30 hours on company tax issues over the past 12 months.

Mr Barnett said that the Chamber generally agreed with the Small Business Advisory Group’s recommendations with regard to compliance issues and hoped that this survey would accelerate these and other plans to reduce the cost imposed on business by red tape and compliance.

For a government interested in constructing solutions to solve SME problems and target higher growth, our survey should be an invaluable tool, concluded Mr Barnett.

ENDS

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