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3 months left: A guide for SMEs to navigate the upcoming IR reforms

The government’s latest Industrial Relations (IR) Reforms are set to take effect in less than three months.

On 26 August, the Closing Loopholes No. 2 Act will come into force – aiming to close existing gaps in employment laws by providing stronger protections for workers while imposing stricter compliance requirements on businesses. 

However, the majority of SMEs are unprepared for these significant changes. According to Rippling’s research, 53% of Australian small businesses think that IR reforms will make payroll procedures more difficult and complex. Therefore, it is crucial that SMEs act as soon as possible to avoid a potential compliance catastrophe.

What is Closing Loopholes No. 2 Act?

Understanding the three primary aspects of the new regulations is the first step towards taking action: 

  • Right to disconnect: This clause, which will come into effect next year for small businesses, allows workers to disregard work-related messages outside of typical business hours in an effort to improve work-life balance. 
  • Protection for gig workers: A new framework for protecting “employee-like” workers in the gig economy has been introduced, assuring them fair treatment and remuneration. 
  • Redefinition of employment terms: The current meaning of the Fair Work Act Will be changed, which could have an impact on many workers’ classification and rights.

How will this affect SMEs?

Small businesses, which usually have fewer resources and less specialised compliance knowledge than larger corporations, will be greatly impacted by these changes. 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 payroll (34%), the cost per employee (24%) and complexity (23%). The ongoing need to handle small adjustments costs time and money, and the impending IR reforms will undoubtedly place additional financial and productivity pressure on SMEs.

Non-compliance can lead to hefty fines, as seen with the first Closing Loopholes Act. Such penalties can be devastating for small businesses with limited resources to absorb these impacts.

How can SMEs remain compliant? 

Small businesses must begin preparing well ahead of the August deadline to avoid the financial and legal penalties that could result from non-compliance. There are six key elements SMEs must remember:

  1. Knowledge: Owners of small businesses need to educate themselves about what the reforms require of them. For example, the right to disconnect necessitates a clear definition of when workers are not expected to reply to work-related communications. In a similar vein, companies need to confirm that workers are classified correctly by reviewing the new definition of casual employment. Clear policies on the right to disconnect and correct worker classification are essential. 
  1. Examination: Perform a thorough review of current payroll and HR procedures to spot any gaps or areas that do not comply with the new legislation. Then, create a detailed plan to deal with these problems prior to the implementation of the reforms.
  1. Investment: Nowadays, automation is key. Almost half (48%) of Australian small businesses still rely on manually inputting employee data, leaving room for human error. Payroll automation may greatly lower this risk and ease the time investment required to adhere to new rules. Centralising employee data into a single system also eliminates the need for duplicate entries across many platforms.
  1. Agility: Further IR reforms are likely on the horizon – SMEs must ensure any investments in automation and technology are built with agility in mind in order to adapt to future changes.
  1. Revision: Ensure that the terms for contract workers and gig workers are reviewed and modified to align with the new legislation, especially concerning the right to disconnect.
  1. Consultation: External consultants, spanning from legal, financial to HR professionals, can offer invaluable advice, pointing out potential risks and suggesting ways to reduce the chance of non-compliance.

With new legislation on the horizon, SMEs must move fast to understand and implement the required changes. By proactively auditing current processes, investing in automation, educating teams, and consulting with experts, SMEs can smoothly navigate these reforms and avoid the repercussions of non-compliance.

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Matt Loop

Matt Loop

Based in Sydney, Matt is focused on supporting and championing Rippling's customers and employees across the Asia-Pacific region. He spearheads Rippling’s multi-year investment initiative in the region, assisting businesses in modernising their legacy payroll, HR, IT, and finance systems. Matt brings a wealth of experience from his previous roles at Slack, LinkedIn, and Salesforce, where he successfully launched the companies into Asia-Pacific markets and drove hyper-growth.

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