How SMEs are coping in the current economy with staffing
A pulse check on SMEs and their biggest concerns.
As the news came through in June that the country had had two consecutive quarters where gross domestic product (GDP) had negative economic growth, it was confirmed that Aotearoa New Zealand is in recession.
Although as independent economist Cameron Bagrie puts it, technically we’re in a recession, but it’s not a real one. “To characterise being in recession, you need to see the unemployment rate moving up,” he says. The unemployment rate is currently 3.4% and is expected to move up into the 5% plus range by late 2023, economic commentators are predicting.
Cameron prefers to call this a reset phase rather than a recession. And this is not necessarily a negative. Have the past five years been normal? No,” he says.
For small and medium enterprises (SMEs), the former bank economist says it’s going to be an adjustment and will call for them to be smarter about decision making. “When you adjust, flush the pipes, it’s not always a bad thing,” he adds.
The economist expects some sectors will be insulated from the downturn, such as central government, healthcare and education (excluding tertiary). The sectors most vulnerable are those linked to the economic cycle – housing, construction and retail, are going to see cost cutting, he predicts.
How small businesses are responding to recession news
Small businesses (SMEs), responded to the recessionary news by taking a pause and considering their options. How will this affect their businesses, their hiring intentions and growth plans in the coming months?
Job listings at Trade Me Jobs were down around 33% in late June compared with the same time last year, so employers are already pulling back on hiring as the recession hits, says Trade Me Jobs Sales Director, Matt Tolich. Other job listing websites are seeing similar drops, he says.
A spokeswoman for SME business management platform MYOB says many SMEs have been operating in a low growth environment with constrained consumer demand and high inflation for many months. As a result, MYOB has seen SME confidence at record lows over the past year.
In two MYOB studies in the first quarter of 2023, 46% of SMEs said they faced pressure from staff to increase wages, but 38% of SMEs said their wages won’t be increasing. Meanwhile 14% indicated they would freeze wages or salaries if NZ entered a recession.
MYOB also found that one in four SMEs said they were short on the staff that they need to operate successfully. To minimise the impact of low employment levels small businesses were responding by:
- having the leadership team working more hours
paying staff overtime
introducing new technology to increase productivity
reducing business operating hours
changing business processes protocols
using automated systems to reduce manual admin.
Employers more in the drivers’ seat when it comes to recruiting
With around 300 SME clients, Lisa Mackay, founder of HRtoolkit, which provides small businesses with DIY HR support, says that as far as recruitment is concerned, the pendulum has changed in terms of ease of finding new staff. There are a lot more applications for roles.
At the same time, in the current economic environment, a lot of companies are holding fire on hiring, not moving in either direction, she says.
“They’re very much focusing on getting better performance from staff. And a lot of companies are holding onto excess staff, but there’s less nervousness about recruitment, so they're more prepared to let people go,” she adds.
Lisa is finding that, when a staff member resigns, SMEs are considering replacing them with a part-time worker rather than a full-time one.
“Small business owners are shoring up their position rather than making wholesale changes,” says the HRtoolkit founder.
Meanwhile, there’s a lot of concern among small businesses about having a workforce who are expecting wage rises this year. “SMEs are realising that they’ve stretched the rubber band so far the last three years, they’re looking at ways to work smarter not harder. Yes, they’ll give a pay rise but they’re not going to give a 7% pay increase to people who aren’t performing in their job,” she says.
“It’s about managing their performance and having those difficult discussions with the people who aren’t pulling their weight,” says Lisa.
The HR expert is having discussions with small business owners around how ChatGPT and AI can be used in the workplace, as well as four day weeks and people working from home. “It’s about getting employers to focus on outputs vs. hours,” she says.
You’ll still have to work hard to hire the right people
As for those small businesses still looking to hire, Lisa reminds them there’s still very low unemployment.
If competing with large organisations for talent, as a small business, you’ll generally have to be fairly close to matching the market pay rate. A persuasive argument for small employers competing with larger competition, she suggests, is if you’re an employee in a small business, you can see that you’re part of the solution, you can really feel the culture and have the flexibility that you might not get in a big organisation, Lisa says.
Redundancy and restructuring questions inundating the EMA
The reality is there are some hard decisions ahead for businesses in managing their staffing levels. Paul O’Neil, General Counsel of the Employer and Manufacturers’ Association says inquiries through the EMA advice line on redundancies and restructures have doubled between January/February and June.
He expects these to continue and to lead to staff reductions and restructuring in the coming months. The legal counsel also expects the unemployment rate to grow in the next six months.
With interest rates, the cost of doing business over the coming months, the economic and geopolitical uncertainty, people are more inclined to retrench and say: “This is the time,” says the EMA legal counsel.
On the plus side, he says: “My hope is that the recession and the economic downturn will be short and sharp. People have been prudent, a whole bunch of business leaders have set their companies up to weather the storm, the hope is we can get through this relatively quickly.”
Some industries will do better than others, the EMA general counsel believes. Paul thinks that professional services firms, accountants, bankers and lawyers will be busy as businesses will need advice and guidance to get through the coming months. Producers of primary products will still be fine too, he says. That’s not going to go away. Tourism could also have a boost ahead when the Chinese market opens up and hopefully returns with 'full noise,' he adds.
Now’s the time to take advice and not make hasty decisions
In the meantime, the advice from entrepreneur and business adviser, The Engine founder, Catherine Cooke to her small business clients is not to make knee jerk decisions about staffing in time of a recession.
There are lots of restructuring decisions happening among small businesses, but employers have to think about brand and reputation when making layoffs, cautions Catherine.
Employees who joined small businesses in the hot market of the last year may find they oversold their ability to take on a job, she says. “They may have the skills but do they fit a culture? Are they adaptable? That’s been the biggest problem,” says Catherine.
Take advice on running your business, says the business adviser. And if you resolve to make your staff more productive, that’s not going to just happen, says the business coach.
You can’t assume that people know what they have to be doing, she says. Communication is so important around improving productivity, she explains.
Catherine suggests bringing them to the table and letting them have a voice, to give their ideas for improving productivity.
Meanwhile, if you’re contemplating making a staff member’s position redundant, send the person off for a day and see how you cope, recommends the business adviser. “Sometimes it’s hard to see the value until [you’re] reacting to a situation,” says Catherine.
How to respond to the salary questions
As for pay rises, economist Cameron Bagrie comments: “We’re moving into the awkward stage where people are expecting hefty pay rises, but on the other hand they have to worry about job security and the two will go head to head.”
Companies have to look at building a solid culture where people have a voice at the table, says Catherine.
Staff may need money with the rising cost of living, but alternate options could include allowing people to work three days in the office and two days at home so they save on petrol, suggests The Engine founder.
Alternatively, businesses could offer perks that come with business memberships which give them retail discounts, or health and wellbeing packages. These are tax deductible and they’re “blankets” to help people feel secure, says Catherine. Training and development is another area which helps staff feel valued.
It can come down to the fundamentals of the work itself, too. Lock Finance business development manager and business coach, Sarah Lochead-MacMillan helped one small firm which was looking at its company structure and workforce.
One employee working in the civil contracting firm who did both manufacturing production and admin, had the admin part of their role outsourced. “This freed them up to do the part of the job they were better suited to so both the employee and employer were in a much better place,” she says.