24 November 2009

In recent months, we have dealt with a number of people who have gone into business without properly checking their obligations as an employer first. In some cases, this due diligence would have made a significant difference to decisions on whether to proceed with the business venture at all or how it would be structured to comply with those obligations.

Unfortunately and notwithstanding the millions of dollars that have been spent on education campaigns on employment entitlements, many people still have not grasped the fundamental reality that:

• federal or, outside Victoria and the Territories, state awards apply to a high proportion of employees in Australia  
• these provide a variety of loadings, penalty rates, allowances and other conditions (on top of minimum rates)
• these conditions cannot be contracted out of although there are limited ways in which they can be packaged provided that the employee would not be disadvantaged by that arrangement
• getting this wrong could result in underpayment claims retrospective for up to 6 years, fines of up to $33000 per offence for a company and up to $6600 per offence for an individual and an end to the business venture in question
• if, in such a situation, a business was wound up, the Fair Work Ombudsman has shown a willingness to continue prosecution of Directors and have any fines imposed by the court made payable to the underpaid employee(s)
• there is a likelihood that a conviction for underpayment of entitlements might result in disqualification of the offender from working with government and
• for those who might want to adopt an independent contractor model, similar considerations arise in ensuring that the individual would be better off as an independent contractor than he/she would be as an employee and the Fair Work Ombudsman has similar powers in relation to sham contracting as they do for underpayment of employees.       

So we strongly recommend that, if you are going into business and that business venture might involve the engagement of employees or contractors in the foreseeable future, check out the minimum entitlements for the particular categories of employee/contractor concerned and your options for contracting them in the most legally and operationally appropriate way.

Franchisors would also be well advised to check this out and have appropriate contracts or agreements set up for use by franchisees as part of the service offering as well as having access to ongoing advice on employment-related matters (for franchisor and franchisees).

For business advisors, accountants, management consultants etc, make this part of the due diligence process for any client who is looking at starting a business or acquiring one.

The Australian Government website www.fairwork.gov.au provides a comprehensive range of information including a series of fact sheets, best practice guides and media releases of relevance to employers.

Contact us for assistance in dealing with these issues.