People Smartz Blog

In October 2009, I wrote a blog article regarding the increasing risk businesses were putting themselves under when utilising independent contractors in their business.

This article was titled Independent Contractors - Benefit or Risk to Your Business? and you can read it again by clicking on the link - I strongly recommend you do.

An independent contractor is someone who is self-employed and contracts his or her services to clients - most often other businesses.

Unfortunately, over the years a number of employers have used this as an avenue to avoid their obligations to their employees in respect to things like accruals, superannuation and other entitlements.  These type of arrangements are called "Sham Contracts".

There has been a very strong push against Sham Contracting by the Fair Work Ombudsman over the last 12 months.  In particular, these investigations have revolved around three industries - cleaning, hair and beauty and call centres.

These audits found that 23% of businesses had "mis-classified" employees as independent contractors.  In other words - nearly a quarter of those companies audited were mis-classifying employees as independent contractors.

A recent experience of company I know is an example of how these laws can effect a business:

About this time last year, I met with a gentleman who had started a commercial cleaning company. Based on common practice in the industry, he had engaged a good number of independent contractors to service his growing client base.

Now, he had developed a business model designed around several main "objectives" including high cleaning standards, good quality cleaning products and a highly organised workforce.

The problem was that these "objectives" also defined the relationship he had with his "independent contractors".

Over the past 12 months, he has worked hard to grow his business.  During this time, he had also worked, with the aid of a specialist company, to set up his independent contractor arrangements and bring them within the requirements of the legislation.

During that period he has also been audited by the Fair Work Ombudsman and successfully negotiated their investigation.  

However, he was advised several weeks ago by the company assisting him that they could not continue to assist him (I should point out for very legitimate reasons with no fault on him or his company).

The result was that he could not continue to run his company on the model he had developed - utilising independent contractors.

He was faced with a choice - continue to operate with independent contractors and face potential issues with the law or move his team to an employment arrangement - given his experience with the Fair Work Ombudsman, he decided to abide by the law.

Unfortunately, when he spoke to his independent contractors, they were not willing to move to an employment relationship. 

This left him with only one option - to wind back his business to the point where the work could be handled by himself and his partner.

So the end result - a good number of people are now out of work, a number of businesses are now looking for a new cleaning company and a once thriving, growing business is now "diminishing" in size and operations.

This story highlights how the wrong employment structure can affect your business.  It was never the intention of the Fair Work Ombudsman's activities to create this situation - this is the result of having the wrong structure operating in the first place.

My recommendations from October 2010 still have a strong meaning now and I recommend you consider them in your business: 

"I strongly recommend to my clients before entering into independent contractors arrangements that they closely review the relationship they are forming.  While the benefits of utilising independent contractors are significant, if not structured properly, they also introduce an element of risk to the business."

People Smartz is able to assist businesses with the process of employing independent contractors.  If you have, or are considering, independent contractors in your business - contact us today.

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It is becoming more and more apparent, that no matter how small your business is, you can not avoid your obligations in regards to meeting your employer obligations.

Many thanks to our great friends at Brands Law for this great example of the line of thinking to which our courts are dealing with breaches of the Fair Work Act:

"Back in April 2011, in a case involving underpayment of penalty rates to employees, Magistrate Hawkins said there was a need to "send a message to the community at large and small employers particularly, that the correct entitlements for employees must be paid and that steps must be taken by employers (of all sizes) to ascertain and comply with minimum entitlements (as opposed to ignoring those obligations).

"Compliance should not be seen as the bastion of the large employers with human resources staff and advisory consultants (accountants, consultants, lawyers) behind them"."

In a speech in May 2011, the Fair Work Ombudsman made a point that it "was not sufficient for companies to turn a blind eye and hope that they are meeting their obligations".  He particularly made the point that companies need to make sure that they are resourcing their obligations appropriately.

With this type of language coming from our courts and the Ombudsman, it is very evident and important that all businesses, regardless of size have in place a system for ensuring compliance with their awards, the Fair Work Act and the National Employment Standards.

Our experience with small to medium sized businesses has shown that business people are finding it more and more difficult to manage these obligations.  As we have said in our blog posts before - the system itself is not built for small business.

Unfortunately, it appears that the message from our courts is that small businesses need to manage their obligations similarly to the way they would be handled in big business.  However, small businesses do not have the human resources staff etc to do that!

Understanding your obligations can be difficult and managing them can be time consuming. The place to start is to ensure you are compliant now!

Why not book one of our People and Business Reviews where we can help you identify the actions you can take to ensure you are meeting your obligations.

Book your review today!

Yes it nearing the end of the year.  We are entering party season - a great time to unwind, rub shoulders with workmates etc.  This can be a fun time!

But end of year parties have a very serious side as many of these antics lead to "regrets" after.

Recent research in Australia found that 70% of people believed that hitting the booze led to a more "personal" feeling amongst staff.  Nearly a quarter of females interviewed admitted that their boss had made a pass at them at an office party. 

Such behaviours can present many problems for businesses, particularly if the "antics" involved lead to a complaint from a member of staff regarding the behaviour of another.

It would be easy to say "no office party" or "its too risky", but sometimes the advantages of holding the party far outweigh the negatives.  The decision to have or not have one is one for the business alone. 

I would recommend a level headed approach to this years Xmas party - making sure the party is well planned and your staff are aware of the required behaviours before hand.  This way you can have the fun while managing the risk!

To help you plan for your businesses party, download our Christmas Checklist today.

Recent research has identified the challenges businesses are facing in managing people in 2011.

This is quite a list!  

• Uncertainty in times of change impacts on confidence of employers and clarity of their strategic direction.

• Fatigue of key employees and additional workload due to shrinking workplaces leads to disengaged workers or management turnover.

• Labour is on average the largest cost to business. The statistics show that it is escalating due to employee expectations for pay increases, the growing anxiety of individual debt and increased competition between employers for talent.

• Over 50% of employees will be looking for new jobs in the next year.

• Employers are ramping up employee numbers but not planning on wage increases.

• Small business is struggling with the fact that they cannot attract quality applicants.

• It is estimated that it can cost more than $48,000 to replace an average employee on $45,000 a year.

• The Red Tape Commission estimates 75% of businesses struggle with paperwork and compliance.

• According to the published National Accountant, 65% of employees have experienced harassment.

• Changes in legislation causes confusion and mistrust. Businesses are at risk externally and it cannot be ignored. Changes in the health and safety and parental leave in Australia are major changes in compliance.

• Internationally, labour laws are becoming more stringent and complex, adding a cost and compliance burden that did not exist before.

• The aging workforce, generational shift, technology adaptation and social media impact are issues that will take hold in the coming year.

If you identify with any of these and are wondering how you can meet the challenge - then give People Smartz a call!  Contact Us

Fair Work Australia has published their decision varying the General Retail Award 2010 to allow casual school aged workers to work shifts shorter than 3 hours.

The award has been varied as follows:

Clause 13.4 is varied by the addition of the following words at the end of the clause:

“provided that the minimum engagement period for an employee will be one hour and 30 minutes if all of the following circumstances apply:

(a) the employee is a full time secondary school student; and

(b) the employee is engaged to work between the hours of 3.00 pm and 6.30 pm on a day which they are required to attend school; and

(c) the employee agrees to work, and a parent or guardian of the employee agrees to allow the employee to work, a shorter period than three hours; and

(d) employment for a longer period than the period of the engagement is not possible either because of the operational requirements of the employer or the unavailability of the employee.

As we have stated in a previous blog post (Common Sense at Last! After School Work Back on the Agenda for Teenagers), we believe that this decision is a win for common sense by Fair Work Australia.  It is a pity that it has taken so long, and a needless appeal to make it happen!

To download the determination, download the Determination from Fair Work Australia

Last financial year, the Fair Work Ombudsman commenced prosecutions against in excess of 50 companies for underpayment of wages and entitlements to their employees.

The simple fact is that this number is just the tip of the iceberg.  Many other employers have had to backpay employees as a result of underpayment.  Just check out the Ombudsman's media release page (Fair Work Ombudsman - Media Releases) and you will see the number of press releases on the subject.

Late last year, we worked with a business that had been underpaying their employees over a long period. By the end of the process, they had back paid their employees nearly $100,000 - quite a hit on a small business!

Now, this situation was one where they had innocently made an error in calculating a 40 hour week. The Ombudsman recognised this and no further action was taken.  However, there have been fines handed out to businesses and Directors where the Ombudsman found that taking further action was appropriate.

One example of a company based fine was where a franchisee from a major franchise group was fined $150,000 for underpaying staff.  Directors have also been targeted, with a recent prosecution fining individual directors a total of in excess of $130,000 for underpaying 47 staff.

Under the current system of Modern Awards and Transitional Arrangements, calculating how much you need to pay your employees can be confusing.  However, it is important to recognise that confusion, or not understanding your commitments is not an excuse for underpaying staff.  In the end, at best, you will be required to back pay them any entitlements they may have not received.

So what can you do to protect your business?  Well here are our recommended 5 Steps to Protect Your Business:

1. Understand and be compliant with the National Employment Standards.
2. Identify the modern awards and classifications that apply to your employees;
3. Make sure your employees receive compensation for actual hours worked, paying particular attention to ordinary hours of work, overtime and penalty rates, and shift allowances. 
4. Do you work a 40 hour week in your business?  Do you roll leave loading into a salary or hourly rate?  These type of arrangements (and others) come under the heading of "Award Flexibility" and you are required to ensure your employees are "Better Off Overall".   If you do not understand the requirements around Award Flexibility - seek advice. 
5. Make sure you keep the right records!  If you are investigated, you will need to demonstrate compliance.  To do that your record keeping will need to be accurate and in accordance with the requirements.  

If you need assistance in any of the above areas - then give us a call!  At People Smartz, we are more than happy to assist you!

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Did you know that 89% of employees in Australian Businesses were employed by companies employing 20 employees or less? (Australian Bureau of Statistics 8165.0 2010)

When you consider this statistic, you need to wonder why our industrial relations system is designed for 11% of the workforce!

It all comes down to some very important factors (in our opinion):

1. The employers of 11% of the workforce are bigger contributors to the political parties
2. The 11% of the workforce are the primary targets of our union movement; and,
3. The employers of 11% of the workforce are the major drivers of industry bodies supposedly in place to support business.

For the last two years, we have released many blogs posts on the unfair dismissal laws contained in the Fair Work Act.

Earlier this month, Fair Work Australia released its latest quarterly report.  It contains some interesting numbers in regards to unfair dismissal claims and the Fair Dismissal Code for Small Business

With unfair dismissals, the tribunal received 3219 unfair dismissal applications in the quarter. The overwhelming majority of these (2564), were settled at or before conciliation. The tribunal made decisions on only 64 dismissal claims in the quarter, finding 24 were unfair and 40 fair.  Only 18 claims resulted in a decision awarding compensation to the ex-employee.

Employees are now much more aware of their rights under the act and claims are on the rise.  Many of our clients are reporting that claims made against them have been frivolous and they have settled "just to make it go away".  The numbers released this month certainly seem to uphold what they are telling us!  

From the numbers presented by Fair Work Australia, The Fair Dismissal Code for Small Business is not working!  While 609 applications related to a small business employee, only two were rejected because the dismissal was consistent with the code. 
We believe this is a worry - if followed, the code is designed to protect a small business from unfair dismissal claims.  At People Smartz, our experience is telling us that, if they know about the code at all, most businesses are finding it difficult to understand - after all, it is basically a corporate process that they need to follow!

We believe that small businesses are generally finding it difficult to work with these laws and over time the issues they present are compounding.  The latest set of numbers from Fair Work Australia seem to indicate this is correct!

Given the current state of Australia's workplace laws, small businesses need to ensure they have the systems in place to protect them against unfair dismissal claims.  This includes having appropriate systems in place to manage poor performance and terminate staff.  

At People Smartz, we are experienced in assisting our clients to put such systems in place.  For many years, we have had in place a review process for small business called a "People and Business Review".  This is designed to review what is in place in your business and assist you to identify the changes you need to make to protect your business.  Why not book yours today?

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It appears that we are finally starting to see some real pressure being put on the Opposition to provide a real policy difference between the parties in relation to industrial relations.  Even Heather Ridout, once a supporter of the Fair Work Act, has recognised the need for debate in this area

And it is about time too!

The Fair Work Act does not balance the playing field in industrial relations and is providing disincentives to small and medium sized businesses.  It is complex and a minefield for players in the game who do not have the time, resources or knowledge to manage it.

At People Smartz we work predominantly with businesses who do not have a Human Resources team, they do not have experience in interpreting the awards and they do not have the time to understand all the complex points of the different areas of the law.

Only last week I conducted a review for a small business person.  His business was operating well and, as far as he was concerned, was compliant with the award and legislation.  However, by the time the National Employment Standards, the Modern Awards, the transitional arrangements and the difference between state and federal jurisdiction had been explained to him his comment was "how am I supposed to keep up and understand all this!"

This particular gentlemen was not working with his staff compliantly and needs to make changes to his employment arrangements.  Due to the changes between state and federal coverage, he had missed several important points of coverage, because of transitional arrangements he had missed increases in minimum wages, because of a lack of understanding of the National Employment Standards he was underpaying staff in accordance with the "Better Off Overall Test".

He is not alone.  We see small and medium sized businesses every week who are in some way not meeting the minimum entitlements under this legislation.  And it is important to note that this is because they don't understand the requirements on them.

Over 80% of those employed in Australian businesses are employed within businesses that have less than 5 staff. These businesses are the real engine room of Australia's economy and they are woefully ignored by an industrial relations system which is not designed to help or support them. Nor have we seen any real effort to provide them with the education they so badly need. 

Since 2005 we have had two pieces of legislation that have led the industrial relations debate - Work Choices and the Fair Work Act.  In my opinion, each of them has taken the debate to the extreme left or right in an effort to either decrease or increase the power of unions within the Australian political and industrial relations arena.  Their underlying aim has not been the development of any "fair and equitable" system, nor have they been designed with the primary aim of benefiting the Australian Economy. Their real and underlying focus was on union power.

It is time that we moved this debate along, the opposition needs to move on and start challenging the inadequate aspects of the current legislation and bring the discussion back to developing a system designed for all Australians and that can support all Australian businesses.  The Opposition needs to stop treating this as a "no-go" area, forget Work Choices and begin encouraging real debate in this area.

It is only through real debate that we will see change - thank god, we are beginning to see some movement in that direction.  
 

A recent case before Fair Work Australia has emphasied the importance of employers having a fair and published process in regards to handling disciplinary problems with staff.

The case (Michelle de Leon v Spice Temple Pty Ltd [2010] FWA 3497, revolved around the "abrupt and quite unprofessional" manner with which an employee had dealt with a high profile customer.

As a result of a complaint from the customer, the employee was dismissed from her position.

The Deputy President of FWA was very critical of the employer because:

• the decision to dismiss the employee was made prior to meeting with her to discuss the issue.  In the words of the Deputy President, she was effectively "ambushed" by the allegation and was given no opportunity to respond to the allegation.
• she was not given the opportunity to have a support person present at the meeting (the employer did suggest that the staff members immediate supervisor was present to support her but this was not accepted).
• she was not given any written warning about her conduct nor was she given a letter of dismissal stating the reasons for the dismissal.