Retirement villages & aged care

The Holidays Act 2003 is one of the most difficult pieces of legislation for Kiwi businesses to comply with. In fact, it is so tricky, that one of the first major entities to be caught out for non-compliance was MBIE – the regulator in charge of Holidays Act compliance. This complexity has seen the Act continue to be in the news over the past few years for all the wrong reasons; three of the biggest stories to hit the headlines include: • The Auditor-General has estimated a $2.1 billion dollar holiday pay liability for the Government • McDonalds has been remediating its holiday pay non-compliance since 2019 • The former District Health Boards have become a “$1 billion nightmare” of Holidays Act non-compliance But the damage isn’t limited to the large end of town either – in fact, we are seeing the Labour Inspectorate pursue small to medium sized enterprises with greater frequency and more rigour, meaning compliance with the Act is essential for businesses of all sizes. What drives non-compliance in the aged care and retirement villages (RV) sector? The holiday pay calculation is straight-forward for organisations where team members consistently work 9-to-5, especially when they don’t have allowances, commissions, or bonuses. Underpayments in those situations are unlikely or immaterial. But this is where the simplicity stops. Where employee work patterns vary - as is the case throughout the aged care and RV sectors - the calculation becomes harder, and non-compliance is much more likely. Support staff often have variable work patterns, including work on weekends and public holidays, as well as complex remuneration structures that include a variety of allowances. The problem doesn’t end there though – bonuses are often common for senior leaders, and this can also contribute to potential non-compliance. Casual staff arrangements are common and we have started to see more pressure from the Labour Inspectorate on correct determination of employee entitlements (casual or otherwise). It is vital operators get these classifications correct to ensure compliance with the Act. These are just a few examples of the specific issues that apply to the sector, but there are almost certainly many other drivers of non-compliance that could apply to operators depending on their payroll system setup and internal payroll processes. Common red flags to look out for While we can’t provide an exhaustive list of what causes non-compliance, here are some of the more common red flags to look for, which might indicate you are inadvertently non-compliant with the requirements set out in the Act. 1. Recording leave balances in hourly or daily units: The Holidays Act defines leave entitlement in weeks, making it difficult to remain compliant when recording leave in hours or days. This is particularly true when employee work patterns change. 2. Complex or variable remuneration structures: The more pay components employees have, the more likely it is that there is non-compliance. Many allowances and bonuses that should be included in gross earnings calculations often aren’t. Examples of these include payments such as allowances or overtime rates that kick in when an employee works more than fifty hours, or daily allowances for long 12 hour shifts. 3. Variable work patterns: These often result in payroll systems inaccurately calculating an employee’s work pattern at any given time. This is a significant driver of non-compliance. 4. Weekend shifts and working public holidays: Many companies struggle to accurately determine statutory holiday and alternate day entitlements. 5. Incorrect identification of casual employees: Some companies fail to identify when their employees should no longer be classified as “casual”, meaning they aren’t awarded the annual leave they are entitled to. “But I have a compliant payroll system!” We often hear from clients that thought they were compliant with the law because their payroll provider said they were. Sadly though, using a major system or outsourcing the payroll function entirely does not necessarily guarantee compliance. As mentioned at the beginning of this article, even some of our largest organisations aren’t immune to slip-ups that snowball into very expensive remediations. So, what does this all mean for me? Although changes to the Act are in draft, they will not immediately guarantee compliance for those with non-compliant payroll systems, nor remove the requirement to address historic non-compliance. To ensure current and future compliance with the law, it is vital that you take a proactive approach in dealing with any possible holiday pay issues. This can limit the extent of any potential financial or reputational fallout.

When it comes to a business strategy that’s as important as succession planning, you can’t afford to leave things to chance. After all, what would happen if your personal situation suddenly changed and you wanted - or needed - to exit your business? Many private business owners are reluctant to invest in a succession plan they feel they won’t need for many years; however you will know better than anyone that getting your business to its current level took time and commitment. A succession plan needs the same attention. A solid exit strategy provides your business with a greater likelihood of long-term survival and ensure a better financial return. Without an effective plan, the future of the business may be put in jeopardy, especially when times get tough or your circumstances change unexpectedly. Also, a lack of preparation can create adverse tax consequences. For example, in the aged care sector we are seeing many small to medium sized businesses dealing with staffing and financial pressures. Owners are heavily involved in the day-to-day operations of their facilities, unable to focus on growth strategies or on their own health and wellbeing. Over time, this is unsustainable; sooner or later it will begin to affect the overall wellbeing of other staff, the business itself and its residents. Burn out is a reality throughout the industry and being well prepared for life’s unexpected events, as well as for the inevitability of growing older, can give you peace of mind and help to underwrite the future success of the business.Having an effective succession plan in place can also: • help maximise the value of your business • improve profitability and the sale price • help you analyse your organisation’s strengths, weaknesses and threats • help you plan for unexpected events and adjust to changing circumstances • enable you to transition the business on your terms not someone else’s • provide a strong blueprint comprising clear options and choices. Start early with a focus on self-care Succession planning isn’t a one-time event, it’s a process that should begin long before you plan to exit the business, so start working on your plan several years in advance. Don’t wait for a year of super profits, or a period of weak performance. Start early, so you can transition on your own terms, while you are in control with the widest range of options available to you. This is particularly important in the aged care sector where operators relying on selling their business as an exit strategy. They are vulnerable to an inadequate supply of skilled labour, and a buyers’ market that is more focussed than ever on strong cashflows. Begin your planning by understanding your current personal circumstances. Few business owners allow themselves this luxury, but it’s critical to establish a personal agenda and identify catalysts for change. You need to honestly consider: • how long you would like to stay active in your business • your health, wellbeing and the level of energy you bring to your business • your must haves, such as how you will finance your retirement • the current and future needs of your immediate family • whether your personal aspirations are aligned with the objectives of your business • your appetite for risk and how it’s aligned with your business’s strategic direction • the capital requirements for you and your business • the skills, experience and capability of your management team and/or your family, and whether they are capable of operating and growing the company without you. Understanding your personal bottom lines will shape your thinking about which approach is best for you. Develop your personal plan There are different succession and transition paths you can take to exit your business. Understanding the advantages and disadvantages of each is an important initial step in developing a plan that’s right for you. Some of these include: • continued family ownership and management • retaining ownership as an investor rather than as an owner/manager • selling part or all of your ownership stake • winding up the business. You need the right support team around you to help develop your personal plan. Helping to lead that team and work alongside you should be someone who understands the overall strategy you are working towards. Someone who can develop a decision-making framework to help drive the agenda and keep everyone, including you, focussed on progressing towards your goals. Your framework could include: • how you communicate with and involve other stakeholders/family members • dealing with your or a family member’s immediate health and wellbeing needs; perhaps you need some time out of your business just so you can think and plan • estate planning for you and your immediate family • a contingency plan to deal with unexpected life events - does someone know where the keys are? • a personal financial plan – have you got a retirement nest egg, or is that a requirement of your succession plan? What are your financial goals? • a tax plan - how will tax impact your financial goals? • a plan for the business. Develop your business plan Understanding where your business is at and what it is capable of will strongly influence whatever succession path you take. When you undertake a current state review, ask yourself: • how good is the financial base of the business? • is there a growth story and growth strategy, and is that plan being implemented? • is the ownership structure tidy, and are all necessary documents in place and up to date including shareholder agreements and financials? • is there appropriate tax governance and planning in place? • does the business routinely meet all its legal and regulatory obligations • are the right people working in the right positions within the business? • how much does the business rely on me? Whatever path you take, and especially if you decide to sell, allow time to ensure the business is investor ready. The better prepared you and the business are for transition, the more likely you are to achieve a successful succession as well as a fair price if you’re selling. Think about how the business operates, the information you can provide to potential buyers about the performance of the business, as well as the quality of your systems, procedures, and assets. Ask yourself: • could you respond to an unsolicited approach for your business? • can you articulate the key strengths and growth prospects of your business? • how would the business cope without you? • do you have a clear strategy for you, the business and your family that allows you to transition out in a controlled and healthy way – in other words, could you get out alive? Aged Care businesses operate in a highly regulated industry and the level of compliance they must satisfy from end to end in their business is significant. Systems, people, and processes need to be at or above industry requirements on an ongoing basis. Building the right habits within the business is critical to sustaining the level of performance aged care businesses need to meet the needs of their residents, staff and regulators. This means your business plan needs demonstrate the required standards of care and infrastructure if you want to the succession process to go smoothly. Although succession planning can be simply defined as the process of transferring the control and ownership of a business, developing and executing a succession plan is not nearly so simple. For a business owner, that planning involves dealing with some challenging questions about your personal circumstances and your business. If you take a methodical and thoughtful approach to that process, and start early (it’s never too early!) you can achieve that transition with a strong healthy business and your own health, allowing you to enjoy the fruits of your efforts for many years to come.

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