The Australian labour shortage, first reported in early 2021, has reached a crisis point. For SMEs with less access to attractive cash bonuses or large paychecks than larger businesses, the challenge of attracting talent is more complicated than ever.
So how can small businesses find and keep great staff? Dynamic Business chatted with Craig West, CEO and founder of succession planning service Succession Plus, about how SMEs can battle the worker shortage.
The new world of work
“I think there’s a combination of things, almost like a perfect storm coming into play,” said Craig. “Firstly, of course, COVID restrictions and the ending of skilled migration for two years have led to a massive shortage of skilled workers in Australia’s economy.
“People have changed the way they work. They’ve gotten used to working from home three or four or even five days a week. They used to working remotely and doing things online rather than face to face”.
The combination of changed working exceptions and a lack of skilled migration has left Australian firms in all sectors and industries of the economy are struggling to fill vacant positions.
Craig continued: “I think there’s a particular shortfall in professional services firms, including my own firm. We use a lot of accounting, business valuers and legal and technical analysts, and we just can’t find people.
“But I’ve got clients in architecture, digital marketing, agriculture and printing who all have the same problems. They just cannot get good quality employees. There’s a shortage everywhere.”
Larger organisations have the power to throw around cash bonuses and pay raises, but small businesses have to get creative with how they attract quality talent to the team.
Craig spoke on his own recent experience hiring to draw attention to the issues businesses face in navigating the labour market.
He said, “We’re seeing cases where substantial wage increases are being offered to retain and attract staff. At our own firm, we have been actively recruiting for both a tax expert and a valuation analyst for over six months, and twice now, the candidates have elected to stay where they are based on a substantial pay increase – in one case $25,000 with a stay bonus of $25,000.”
Businesses now realise they have to be creative. With the last two years in mind, offering flexible arrangements that allow people to work from home one or two days a week is a powerful recruitment tool.
Craig said, “Firms are allowing flexible arrangements so employees can work from home a couple of days a week or work remotely on a Friday, let say, so they can have a long weekend, in an effort to attract staff.
“Some businesses are doing simple things like little bonuses, cinema vouchers, and dining vouchers or travel vouchers. When people get creative, what we’re seeing is a whole stack of different designs around hiring bonuses.”
Owning your work
One powerful tool small businesses can offer when recruiting is an Employee Share Ownership Plan (ESOP).
Craig said, “An Employee Share Ownership Plan (ESOP) is a mechanism to allow employees to own a share of the business they work for.
“There are different types of plans based on the size and structure of the business and what the business owner hopes to achieve from offering one. They can be suitable for both private and public companies, large and small.”
According to Craig, the popularity of ESOP has increased on account of the pandemic. He has seen an unprecedented rise (over 400% vs pre-COVID) in enquiry and adoption of employee share schemes.
He continued: “Interest in ESOPs increased dramatically during 2020 and 2021 as SME business owners sought to ensure their workforce was aligned, motivated and focussed amid the disruption to work arrangements brought on by COVID-19 – and now that Australia is reopening, to address labour shortages.
“We have seen a 400% increase in enquiries from SMEs about how best to offer ESOPs to their employees. Increasingly, staff want to own equity in the business they work for, and this can have significant benefits for both the business and its owner.
“ESOPs used in a small business can usually be great economic multipliers with a disproportionate impact and a win-win-win scenario where employees, founders and the business are all better off.”
ESOPs may be an increasingly important element in attracting new staff; however, even more importantly, they are excellent for staff retention.
Craig said, “ESOPs are great to both attract and retain people. The employee share plan allows you to own equity in the company you work for. Because of the nature of equity because it’s much longer term, staying at your company becomes more important. It has a powerful retention mechanism attached to it.”
Importance of retention
While hiring is front of mind for many short-staffed businesses, retaining great staff is just as important. Hiring new staff is costly both financially and time-wise.
Craig said, “I think recruitment is what everyone’s trying to do. But I think many people miss the fact that you can go off and recruit new people, but you are, in fact, much better off focusing on keeping the people you already have.
“There’s lots of academic research about the cost of replacing people, finding it can cost anything from 30 to 60% of an individual’s salary.
“So if your solo accountant, for example, and it costs you $40,000 to replace a person in recruitment, along with lost productivity and training the new person, you’re much better off investing in keeping current staff. Retention is really important.”
According to Craig, methods for retention are much the same as those offered when hiring a new employee; he stressed the importance of investing in current staff, stating, “Whoever you are recruiting is a staff member you will have to end up retaining.”