Thousands of small businesses at risk as regulatory environment becomes increasingly muddy

Last month, the Work Life Balance and Miscellaneous Provisions Act was signed into law, with more new legislation for Irish businesses to follow, such as the Automatic Enrolment Retirement Savings System Bill and revisions to the EU’s Packaging and Packing Waste Directive. It’s only reasonable that we question how prepared small and medium enterprises (SMEs) are for these new laws, and if they will be able to keep up with larger businesses.

The Work Life Balance and Miscellaneous Provisions Act 2023 will give employees an entitlement of five days of unpaid leave for medical care and five days for victims of domestic violence.

It will introduce the new right to request remote working for all employees. This will mean remote working requests can be made by all employees and employers will have to consider and issue a written notification, which details their reasoning, if they refuse. For bigger businesses, this act, like others, will be an adjustment but for SMEs these entitlements will present challenges in an already difficult economic environment.

These laws present major hurdles for smaller businesses which increasingly lack the expertise and resources to achieve sufficient levels of compliance. Administrative burdens, employee practices and increased costs due to these regulations will all prove another pinch for SMEs.

Over the past 12 months MentorsWork has advised over 1,600 companies. Some of the key questions received and advised on have been around the costs associated with implementing these new bills and legislation. Post Covid, SMEs have been predominantly concerned with rebuilding their businesses and recovering from losses incurred during the pandemic. While reduced sales, supply-chain disruption and health and safety compliance were among the main challenges being faced during that extraordinary time, our mentors are now advising on a new wave of challenges.

Our estimates suggest that the rollout of auto-enrolment, the living wage, pensions, statutory sick pay, and other leave proposals will add 9pc to average labour costs in Ireland over the coming decade. This is against the backdrop of cost increases, such as energy and materials costs.

Securing finance also presents as a challenge for SMEs. At MentorsWork, we are seeing many small firms struggle to secure funding from banks due to stringent lending criteria, lack of collateral, and the risk-averse nature of banks. This is particularly acute for start-ups and micro-enterprises, which often lack the track record and assets required to secure loans. This is all without considering the increased burden of borrowings at today’s interest rates.

The challenges we are seeing have compounded in a sharp uptake in SMEs coming to us in serious need of guidance and mentorship around how to navigate the increasingly muddied waters. Take your local family-run hardware store. Up until recently, their biggest risk would have been a downturn in consumer demand. Now they must contend with a vast array of regulation, not to mention the cost burden that will follow. For multi-generational family businesses that are already fighting to adapt to the digital age, this is another obstacle to overcome.

Another example is the hiring of staff. SMEs are under no illusion that they do not have the same resources to hire compared with larger businesses or multinationals, not to mention the allure that comes with working with recognisable brands. Our team is on the ground, helping SMEs upskill current staff and promote positive company cultures which is a key factor for prospective employees.

While it’s appreciated that new business regulations prioritise employee welfare, we believe there is a need for far greater flexibility and adaptability for SMEs when it comes to implementing new and proposed legislation.

A one-size-fits-all approach will not work when it comes to regulation in a business of 1,000 people versus 50, as smaller businesses do not have the same level of resources and expertise that would be found in a larger business.

SMEs should stay engaged and on top of new legislation, taking learnings from both large and small firms. Staying agile and keeping up to date with technology remains a priority. It’s important for these businesses to know they are not alone and that there is support out there to help them navigate this new legislation.

David Broderick is the director of the Small Firms Association (SFA)

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