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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.

Post-election 2023, can we expect to see our newly formed Government acting on their campaign cries of supporting a “health system that’s in crisis”? Or is it time for the industry to more actively participate in its own rescue? Either way, the time for action was yesterday – today, we are at risk of the state of our healthcare system being treated as business as usual. So, apart from healthcare professionals working in a perpetual crisis that’s stymying innovation, as well as the time and energy they need to truly transform the sector – what else is holding the primary healthcare sector back from change? A recent report issued in August 2023, Lifeline for Health, Meeting New Zealand’s need for General Practitioners, by Emeritus Professor Des Gorman and Dr Murray Horn, suggests the solution lies in transforming funding models. The authors’ comments about primary care being funded on an activity-based model resonated the greatest with me. The cries for additional funding across the healthcare system have been heard loud and clear, with more than enough evidence to justify this. However, if more money is tagged to more activity, how does a healthcare system already stretched from a human resource point of view improve outcomes – or the wellbeing of our healthcare professionals - by engaging in more activity? The report suggests behaviours and outcomes barely differ between a capitated funding system versus a fee-for-service model that previously existed in New Zealand, thereby challenging future health ministers to be bold and innovative. The report’s authors recommend, ‘the “health system” must focus more on outcomes and value.’ They also acknowledge this would mean a reduced rate of investment in hospitals and hospital care, while focussing more funding on primary care. This makes perfect sense - investment in prevention and early detection of major illness will require less hospital funding for a healthy, well-looked after nation. Prevention is less expensive than the cure. And, General Practitioners can take heart, as the report reiterates the importance of the role of good primary care in a well-functioning health system, re-affirming their role as ‘specialists’. The sector needs to support and financially incentivise specialist GPs to be the architects of their future and lead an innovative, sustained transformation. They need to be empowered to focus their expertise and efforts on improving health outcomes in the long term, rather than being underpinned by a ‘fee for service’ system that leads to more activity, stretched resources and poorer health outcomes for Kiwis. A quick look back at history History tells us drastic overhauls of public systems are achievable. In the 1990’s our accident compensation system was facing a crisis. The looming tail of investment required to fund both current claims in any one year, plus the ongoing funding required for historical claims was becoming unsustainable. The system was in dire need of transformation and many thought it could not be done. Despite the stop-start process of privatisation - and unravelling of privatisation - and a blowout in debt in the next decade, strident efforts to manage claims better on a fully funded model, coupled with the prudent investment of funds, ACC turned its fortunes around to become one of the largest investment funds in the country. No system supporting health will be completely perfect, but as with ACC, if hard calls are made, it can be turned around to deliver better outcomes. Time to be bold, not just tinker around the edges To date successive governments haven’t attempted to offer truly revolutionary solutions such as social insurance models which could be the way out of the current dilemma. Social insurance schemes such as those established in Switzerland, France, and the Netherlands, focus on funding for the long term. The fear in New Zealand in the past when these schemes have been suggested, is that it is a move to privatising the health system. However, the reality is, the majority of primary healthcare services here in New Zealand are already delivered by private providers. This leaves the current financial risks associated with funding primary care sitting with the private sector, which will only encourage primary providers to vote with their feet; and when the financial viability of their business is declining, difficult decisions will be made that will impact many communities. In the meantime, let’s harvest the low hanging fruit The new Government’s promises to establish a third medical school, increase medical placements at Otago University, establish satellite training centres in regional areas, and training alliances to deliver more doctors to rural parts of the country are all welcome. Those promises need to be followed up with a more structured process for managing the careers of those trainees to ensure that they do stay in New Zealand. We need to incentivise over 50% of current trainees to commit to working in general practice in the longer term, if the current primary care workforce is to be maintained, let alone grow to accommodate future population growth. If the new Government follows through on its partial student loan repayment and bonding plans for midwives and nurses, it is at least starting to show a commitment to help build up the primary care workforce.

You have completed your due diligence, signed all the paperwork, and have officially acquired an entity or a business. You might think all the hard work is done, but accounting for it may be harder than you think. Here’s some key questions you need to consider.

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.

Beyond compliance: What are your annual financials really telling you? With the first six months of the 2024 year behind us and March 2023 year end compliance work in full swing, it’s always interesting to see common themes jumping out from clients’ financial reports. While annual compliance can be seen as a chore for many, it still provides important opportunities to discover valuable insights to keep your business safe and help it improve. What’s behind your record revenue numbers? To a large degree this is an inflation story, but we are seeing genuine growth in the mix as well. The key is maintaining and increasing the gains you’ve made. Revisit your goals for what you want your 2024 year-end financials to look like and develop or enhance your plan to get there. For example, what can you do to generate more leads and increase customer retention? From setting up a customer feedback programme to exploring where advertising your brand would be most effective, a little bit more investment in your sales and marketing efforts can make a huge difference. And, how well do you know your client base, and what are your most successful and profitable product lines? While you’re likely to have a reasonably accurate idea of where your revenue is coming from, investing in tools and software to segment your customer base can open up a whole new world of up-to-the-minute insights about what’s working well and what isn’t. You can then allocate more resource to the most successful products and services. Take the 80/20 rule for example – if 80% of your revenue comes from 20% of your customers or offerings – focus on that instead of everything else. This can also give you time and space to explore new products or services to enhance your customers’ experience. The margin squeeze: Reduced gross profit percentage A weaker New Zealand dollar, higher costs of freight and shipping in the earlier part of the 2023 financial year, and higher costs to purchase goods all contribute the squeeze. While businesses have put their prices up, contributing to the growth in revenue, in many cases it has not been by enough, or not soon enough to maintain gross profit margins to the same extent as in 2022. We typically see a lag in clients putting their prices up, often wearing cost escalation for fear of losing business and market share. Keep a regular eye on your month to month and year to date financial results, along with comparison to prior years. Once or twice a year just isn’t going to cut it in a volatile economic environment. This is where the power of periodic reporting comes in. These monthly reports act as a temperature check for your business by giving you updates about your key performance indicators which typically include: • Current ratio of liabilities to assets (working capital) • Gross and net profit margins • Interest cover • Stock turnover • Aged debtors and creditor payment times • Ratio of wages to sales It may sound onerous to set up, but it’s an invaluable exercise. Once you have reports automatically rolling over monthly, you can also streamline your annual compliance requirements, save a considerable amount of time trying to find historical information, and get regular up-to-date results that lead to improved decision-making. Overheads are creeping up What seems like death by a thousand cuts, with overheads up across the board, a little here and a little there, it absolutely makes a difference, particularly at the wages line. We’ve heard this in the media on a frequent basis and it has absolutely been playing out in clients’ results. Watch out for ‘lazy’ costs. It’s easy for excess to creep in when times are good and the cash is flowing. Consider what is necessary to core business and staff morale and retention, and focus on trimming the fat. Are you up to speed on technology developments within your industry, and continued emergence of AI? Are there tools or processes you could introduce to materially reduce overheads or improve efficiencies? This could include reducing the impact of travel on your overhead costs by using technology for meetings instead, or simply delaying capital expenditure for a certain period of time. Sometimes bigger cuts need to be made – particularly when it comes to wages, but proceed with caution and approach all decisions with a future focus. For example, if you need to reduce your headcount, will this increase again during your next growth phase? There’s always going to be costs for recruiting and training new team members, and if the labour market is tight how will this impact your ability to deliver products and services to customers? It all comes down to cashflow A cliché no doubt, but cashflow is absolutely the lifeblood of your business. There’s lots of levers you can pull to improve your position, including: Terms of trade with your customers: Can you reduce/re-negotiate payment terms, speeding up your cash conversion rate? Making customer payments easy: Set up a click through payment function within your invoices and enable payment by credit card. The easier it is to be paid, the sooner you will be paid. Focus on debtor collection: Stop putting off those tough conversations and start making your accounting software work for you – many products have automated reminders. Take the time to set this up and any other relevant functionality. It will save you time in the long run. Are you carrying too much stock? Does your stock system alert you to aged stock? And, without shooting yourself in the foot from a margin perspective, what clever ways can you clear excess stock profitably? Are you paying your creditors too soon? Make the most of payment terms available to you and consider re-negotiating with suppliers where applicable. Are you getting the best deal from your suppliers? Go to market and see what’s out there. We’ve seen some incredible cost savings for clients undertaking this activity. Consolidate your suppliers: If you’re using a multitude of suppliers, explore options where you can negotiate a better rate by spending more with fewer suppliers, resulting in cost savings overall Consider debt funding structures: You may be able convert short term bank overdrafts into term debt to spread the load during times of tight cashflow. Jump on the tax pooling bandwagon: Consider using tax pooling to smooth out or defer provisional tax payments. And above all, forecast, forecast, forecast! Failing to forecast cashflow and plan ahead can cause even the most profitable businesses to rapidly fail.

Grant Thornton recently hosted an organisational change summit in Wellington which included a robust panel discussion about organisational and cultural change. I had the pleasure of taking a deep dive into the challenges and opportunities organisations can experience in today’s market with Janelle Riki-Waaka, Vanisa Dhiru and Jo Cribb. Read on to discover the key insights that emerged from the discussion. Today, the one constant we see and experience in our personal lives and business environments is rapid and perpetual change. You may find your business or organisation needs to look seriously at an organisational shift because: • Aotearoa is experiencing significant economic challenges • your organisation is growing to a point where you need to reset the business’s priorities, vision, and purpose • parts of the business are underperforming or failing to deliver on certain priorities, resulting in lower efficiencies. The key to sustainable and future growth is a unified organisation operating within a strong people-centred and cultural context, with visible leaders leading the charge. This means leaders are transparent and consistent in their messaging, and are seen by their people throughout the change journey. For some, this may feel like a foreign concept, or you just haven’t experienced change like this before. Well, you’re not alone - there are so many people who will feel the same way. While change is so constant, it’s seldom delivered well because: • people-centred change relies on soft skills like empathy for people, emotional intelligence and leading through capturing the hearts and minds of your people. However, change initiatives often become transactional because it’s much easier to focus on the technical aspects and outputs of change, rather than look deeper at the behaviours and beliefs that may be holding us back. While human-skills are a natural leadership quality for some, it doesn’t come naturally for all people who have a leadership title. The good news is these skills can be learned, to support your understanding of the importance of walking your talk. • leadership often isn’t visible to an organisation’s people throughout the change journey - it’s easier to default to, “not enough time, too much going on”. My belief is that time management is a choice, and a leader needs to make that investment of time to be authentic and for the change to be purposeful. [Image 1] Caption: Insights captured by a live scribe at the event Bring your people along for the journey with effective communication We choose places to work in the same way we choose restaurants, houses, and holidays – places that really talk to us and give us a sense of belonging, so when change happens within a business, this can spark a sense of grief. People’s sense of purpose and belonging is lost when they’re told about change, or it’s ineffectively communicated. Constant communication is an important tool when implementing change – telling people how the process will move and shape the organisation. Lack of effective and consistent communication often leaves people feeling: • what they’ll gain is far less than what they’ll lose • the “bright future” being proposed is better than the work they’ve done before, and that the past is “bad”, and the future state is better • there is no point in giving my role 100% if my work is not valued. Techniques to support leaders and managers to communicate to their people through the change journey can be guided by three lines of sight: Hindsight for leaders of change: This involves acknowledging the past, innovating from experience and growing your organisation with your people Foresight for managers of change: For those charged with the task of overseeing the change process, it’s mission-critical to lead with transparency, make pivots with courage and be open to learning through listening to all of your stakeholders Oversight for for deliverers of change: This means having the right people in place to manage the outputs, deliver the work and implementing the change. Change happens at the speed of trust Building trust throughout your organisation during any change process is an absolute must and can be achieved through genuine engagement and inclusion. Once trust is established, people are more likely to support and champion change. This will ultimately lead to engaged and productive team members. Water the flowers and the seeds of change. These are the people who will bring about change. Know who your rocks are, these are the people who may not ever be ready to embrace change. Make sure you have a realistic plan for those people, even if that means they eventually leave your organisation. People centred change: Diversity vs a one size fits all approach Our Māori, Pacific and Asian populations are growing, and will represent a large portion of the talent hiring pool in the not-so-distant future. Our diverse cultures and backgrounds can add immense value to your business and your market. Make sure you look at change through a diverse lens. Examine the diversity within your organisation – or lack of it. Consider who you have designing change and ask, “are we representing everyone?” Will the changes we are considering cater to our growing diversity as a nation? If you don’t have diverse voices at the table designing change, you’ll end up delivering a one size fits all process for the more dominant group or point of view within your organisation; this can cause many bumps in the road, and is not likely to be sustainable, due to lack of buy-in of the narrative. Get the right people at the change design and decision-making table, give them a voice – empower everyone to contribute to the journey. So, what could all of this look like in your organisation? To many, change is simply a restructure – shuffling the deck chairs to solve perceived challenges by certain groups in a business. However, this approach can create more problems than it solves and become unnecessarily expensive – think consulting costs and lawyers’ fees. To successfully implement a people-centric, well communicated change process in your business you can bring your people along for the journey by asking them what type of organisation they want to work in, and what type of organisation they currently work in. The answers can give you a road map to a future state that’s fit for purpose for everyone. Instead of a restructure, you may just need to look at your leadership framework, behaviours, purpose or who sits around the decision-making table. Use everyone’s insights to set some goals for your business, for example, big decisions can’t be made if there isn’t cultural or gender equity in the room, or KPIs and standards to measure leaders’ behaviour against your organisation’s culture and values – do they walk the talk? Change isn’t a distinct period of time, but a constant we all live with. Embed it in your organisation as a way of working. Invest in an experienced inhouse culture and change expert so this work isn’t thrown on top of your HR team’s responsibilities. Having a dedicated resource can help you spot opportunities and track progress against your goals. Your organisation will realise the benefits from a transparent change journey when the people are bought into the journey right from the outset. That is the best place to ensure you will achieve a level of acceptance and buy-in. They are the people the organisation will depend on to deliver and implement the change and the organisation’s ability to achieve their return on this important investment.

Many businesses continue to recover from the physical effects of extreme weather events experienced throughout the year, and will be dealing with the subsequent year-end reporting challenges. And some will also be going through the process of claiming insurance for physical loss or business interruption.

Good policies are essential for every business - how effective are yours? Almost everything happening within your business - from decision making and employee behaviour, to ensuring consistency and compliance throughout your organisation – should be guided by clear and effective policies.

The more you know about your business, the better your decision-making can be. That’s why we’re always surprised at how many businesses don’t produce consistent monthly reports. Periodic reporting checks the pulse of your business and gives you monthly updates on your key performance indicators.

Service reporting is all about your non-financial performance – the data that showcases the most meaningful parts of what your entity does. The standard is designed to help everyone see the fantastic work your charity is doing, and you might be surprised at the potential benefits of non-financial reporting. This service report tells all of your stakeholders:

New Zealand company tax changes mean that unused tax losses, previously lost following more than a 49% change of business ownership, may now survive. This means that while any existing tax losses for a sale above that threshold could previously be ignored during M&A negotiations, buyers and sellers should now consider potential price impacts when such losses exist.

Does your company have a purpose, a vision, and accompanying values? As a business owner you know what your company does, but do you have a clearly stated purpose about why you do it – the values and behaviours that you and your whole team understand, embrace and live by?

Is your Not for Profit enterprise prepared for a cyberattack? If the answer is 'no', you're not alone. Our research report, Here for Good? uncovered some alarming statistics that highlighted cybersecurity as a major vulnerability in the sector

In March 2024, PCI DSS version 3.2.1 is officially retires and version 4.0 comes into full effect – and if your business accepts card payments, you need to ensure you’re ready. PCI DSS protects your customers’ information when they provide their credit/debit card details or planned payments, and you must comply with the standard.

The US is the bastion of capitalism – and yet it is committing to building a greener, more sustainable future. It has recently done something revolutionary, investing in transforming its economy for the better. Biden’s signature piece of policy, the Inflation Reduction Act of 2022, is a powerful tool for positive change. It provides $500 billion in new spending and tax breaks that will boost the green transition, encourage investment in R&D, and support its manufacturing and agricultural sectors.

In February we launched a bi-annual research initiative to track business sentiment and explore where New Zealand businesses are succeeding, and where they’re feeling pain.