■ A fortnightly business advice column by Whakatāne accountant and business adviser, Jason Lougher

Most business owners think about risk in financial terms. Cashflow, debt, tax obligations and profit margins are the numbers people tend to watch closely. But one of the most expensive problems a business can face rarely starts in the accounts. It usually starts with people. Employment disputes can escalate quickly, and in New Zealand it’s not unusual for a personal grievance claim to end in a settlement worth tens of thousands of dollars.

Sometimes the issue begins with something small a missing employment agreement, a poorly handled performance conversation, or a process that wasn’t followed properly. Before long, what looked like a minor workplace issue becomes a $25,000 problem.

What makes this particularly frustrating for business owners is that most employment disputes do not start with bad intentions.

They usually begin with situations that will sound familiar to anyone who has led a team: a performance issue that has been quietly building for months, an employment agreement that is outdated or unclear, workplace policies that no longer reflect how the business actually operates, or a difficult conversation that was avoided for too long.

Eventually the situation reaches a breaking point. The employer decides the relationship is no longer working. The employee feels the process has been unfair.

Lawyers become involved. Suddenly the business is negotiating a settlement that could easily reach $20,000 or $30,000. And that figure rarely tells the full story. There is legal advice to pay for. Time spent managing the dispute. Stress and distraction for the business owner. Often disruption across the wider team as well.

What started as a people issue has now become a financial one.

Interestingly, the warning signs often appear long before the dispute itself. In fact, they frequently show up in the numbers. Financial reports and payroll data can reveal patterns that suggest deeper challenges inside a business well before they turn into formal employment issues.

High staff turnover is one example. If employees are regularly leaving and new ones are joining the payroll, it may indicate problems with hiring, leadership, or role clarity.

Rising recruitment costs can tell a similar story. Businesses that repeatedly rely on recruitment agencies may be spending thousands each year simply replacing staff rather than building stable teams.

Another signal appears when wages begin growing faster than revenue, or when revenue falls while payroll remains unchanged. That pattern can sometimes point to unclear roles, inefficient team structures, or performance issues that have not yet been addressed. These patterns rarely appear overnight. They usually develop slowly.

The challenge is that many business owners are focused on running the day-to-day operations of the business, so these signals are easy to overlook.

Another common situation appears when someone leaves a role. The immediate response is often to replace them as quickly as possible. A job advertisement goes out, interviews begin, and a new person is hired. But the more useful question is often the one that is not asked.

Do we actually need this role in the same way?

Sometimes responsibilities could be redistributed internally. Sometimes the role itself was never clearly defined. Sometimes the business has grown, but the job description has not kept up. Hiring someone new without rethinking the role can simply repeat the same problems again. And that cycle of hire, struggle, replace, repeat can quietly become one of the most expensive habits inside a business.

Employment law in New Zealand is also continuing to evolve, which means businesses need to be more careful about how workplace issues are managed. Recent changes and proposed reforms are increasing the focus on fair process and proper documentation.

Areas receiving particular attention include the classification of employees versus contractors, consultation requirements during restructuring, and the way performance management is documented.

Even when business owners believe they are acting reasonably, failing to follow the correct process can still expose the business to a personal grievance claim. For many small and medium-sized businesses, the challenge is not understanding the rules it is applying them properly in real situations.

The good news is that most employment disputes are preventable. Businesses that avoid these situations usually have a few simple things in place: employment agreements that are current, workplace policies that are clear, performance conversations that happen early rather than months too late, and roles that are thought through carefully before recruitment begins. None of these systems need to be complicated. In fact, the most effective ones are often simple and written in plain English.

Because once a workplace issue escalates into a legal dispute, the cost both financial and emotional rises quickly.

Sometimes the earliest warning signs of workplace challenges show up quietly in the financial reports. Higher turnover. Rising payroll pressure. Recurring recruitment costs. Numbers like these can be easy to dismiss as normal business fluctuations. But occasionally they are pointing to something deeper. Behind every set of numbers is a team of people. And if the people side of a business isn’t working, the numbers will eventually tell the story.

■ Jason Lougher is the owner of Calc Business Advisors & Chartered Accountants. Our team advise businesses throughout the Eastern Bay of Plenty — and across New Zealand. Like this article or want to chat? Feel free to send me an email: [email protected]