The three-month countdown for the government’s latest Industrial Relations – IR Reforms has begun. On 26 August, the Closing Loopholes No. 2 Act will come into force, as part of the broader IR overhaul in Australia aiming to fill existing gaps in employment laws, providing stronger protections for workers while imposing stricter compliance requirements on businesses.
Yet many small businesses are unprepared for the sweeping changes that will take effect– Rippling’s research shows that over half of Australian small businesses (53%) believe that the IR reforms will add more complexity and stress to payroll processes. It is therefore imperative that SMEs take action sooner rather than later, or risk facing a compliance disaster down the line.
Understanding the Closing Loopholes No. 2 Act
The first step to action is to understand the new laws, of which there are three key aspects. The first is the ‘right to disconnect’, a provision granting employees the right to ignore work-related communications outside of their regular working hours, promoting better work-life balance. Then, there is also the introduction of a framework to protect ’employee-like’ workers in the gig economy, ensuring they receive fair treatment and adequate compensation. Finally, the existing definition in the Fair Work Act will be replaced, potentially affecting the classification and entitlements of many workers.
Impact on small businesses
These changes will significantly impact small businesses, which often operate with limited resources and with less specialised compliance expertise than larger enterprises. In fact, our research shows the most common pain points for SMEs are keeping up with legislation and compliance obligations (40%), the length of time it takes to process (34%), the cost per employee (24%) and complexity (23%). It costs time (and by extension, money) to keep having to address incremental changes, and the upcoming IR reforms are bound to put further financial and productivity strains on SMEs.
Concerns around the upcoming IR reforms in the SME space are well-founded considering the hefty fines we have seen imposed on major organisations for non-compliance under the first Closing Loopholes Act. Such penalties can cause significant financial and reputational damage, which can be devastating for small businesses that typically have fewer resources to absorb these impacts.
How to remain compliant
Given the potential repercussions of non-compliance, which include severe financial and legal penalties, it is crucial for small businesses to start planning ahead. Here are six key steps they can take now:
- Understand the new laws: Small business leaders must educate themselves on what is required of them from the reforms. The right to disconnect, for example, requires clear policies outlining when employees are not expected to respond to work communications. Similarly, businesses must review the new definition of casual employment to ensure correct worker classification. Tap into the expertise of your ecosystem with partners – whether HR consultants, financial or legal experts – to provide help in speeding up this learning process.
- Audit current processes: Conduct a detailed audit of existing HR and payroll processes. Identify any gaps or areas that do not comply with the new legislation. Develop a clear plan to address these issues before the reforms take effect.
- Invest in automation: Almost half (48%) of Australian small businesses still rely on manually inputting employee data, opening the door to human error. Automating payroll processes can significantly reduce this risk and alleviate the burden of staying current with new regulations, and centralising employee data in one system further reduces the need for redundant entries across multiple platforms.
- Be agile: More IR reforms are likely to come down the pipeline – SMEs must ensure any investments in automation and technology are built with agility in mind, making it easier to adapt to future changes.
- Review and update contracts and policies: Ensure that employment contracts and company policies are updated to reflect the new laws, incorporating the right to disconnect and adjusting terms for casual employees and gig workers accordingly.
- Seek expert advice: Consulting with legal and HR experts can provide valuable guidance, helping to identify potential pitfalls and offer strategies to mitigate the risk of non-compliance.
With the new legislation rapidly approaching, small businesses must act now to understand and implement the necessary changes. By taking proactive steps to audit current processes, invest in automation, educate teams, and seek expert advice, SMEs can navigate these reforms more smoothly and avoid the consequences of non-compliance.
Contributed By Matt Loop, VP and Head of Asia, Rippling