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The Five Most Common Employment Pitfalls

· · Employment Law ·

Buying a business?

Buying a business can often lead to unintended liabilities and inherited entitlements, wages costs often form the largest expense of the business – may lead to assumption the vendor’s rates of pay are correct.

Why does it matter?

The impact on a business of non-compliance with employment laws can be significant and can include:

  • Distraction from running the business
  • Staff issues including poor morale and lost productivity
  • Substantial back-payments
  • Prosecution by Fair Work Ombudsman seeking pecuniary penalties

The 5 most common employment pitfalls

1. Employment contract:

  • Probationary period
  • Policies and procedures;
  • Fair Work Information Statement;
  • Continuity clause;
  • Annualised salary and off-set clauses; and
  • Restraint of trade.

2. Award identification and compliance:

  • Base rates of pay, overtime, penalties and allowances;
  • Pay cycles and rosters;
  • Inform employee of correct classification;
  • Redundancy and consultancy obligations; and
  • Wage increases.

3. Performance management:

  • Position description and KPIs;
  • Frequent discussions – positive and negative;
  • The myth of 3 warnings.

4. Correct classification – FT, PT, casual, independent contractors

  • Beware the long-term casual
    • Casual loadings in addition to leave entitlements
    • Minimise risk with off-set clause in written contract
  • Incorrectly treating employees as contractors can lead to:
    • Prosecution for sham contracting
    • Mistakenly believing business is a small business under the FW Act
    • PAYG withholding penalty for not meeting their PAYG withholding obligations
    • super guarantee charge (for not meeting their super obligations), made up of:
      • super guarantee shortfall amounts (amount of super contributions that should have been paid into a complying fund)
      • interest
      • an administration fee.

5. Termination entitlements:

  • Notice – NES v Contract;
  • Payment in lieu;
  • Garden leave;
  • Annual leave loading; and
  • Restraint of trade.

Recent case

Fair Work Ombudsman v Ross Geri Pty Ltd & Ors [2014] FCCA 959 (6 June 2014)

  • A Strathfieldsaye security business was prosecuted in the Federal Circuit Court for various contraventions of the FW Act and pre-reform award that occurred between 2006 and 2011
  • The underpayments to 4 casual employees totalled $89,117
  • The business paid flat rates to its staff that did not meet minimum requirements for overtime rates, shift loadings, weekend and public holiday penalty rates
  • The Court imposed fines totalling $147,708 for 8 categories of contraventions:
    • Company $110,880
    • The husband Director $22,176.00; and
    • The wife employee (responsible for payroll) $14,652.00.
  •  Fines of $147,708 were imposed despite:
    •  The company being “a relatively small, family owned and operated business in a regional town” with few assets
      • ‘No less than large corporate employers, small businesses have an obligation to meet minimum employment standards and their employees, rightly, have an expectation that this will occur. When it does not it will, normally, be necessary to mark the failure by imposing an appropriate monetary sanction. Such a sanction must be imposed at a meaningful level’’Employers must not be left under the impression that because of their size or financial difficulty that they are able to breach an award. Obligations by employers for adherence to industrial instruments arise regardless of their size. Such a factor should be of limited relevance to a Court’s consideration of penalty.”
    • A recent quarterly profit and loss statement showing a net loss of $383,496.46
    • In addition to the underpayments of $89,117, the Respondents had incurred nearly $80,000 in legal fees
  • In relation to a statement from the husband Director below, the Court held that “these consequences are an inevitable result of proceedings under the FW Act, and are of no relevance to the question of penalty”.
    • “Working 7 days a week can be stressful as it is having limited time to spend with family. But the ongoing emotional toll trying to get through the unknown of the Fair Work case has been unbearable at time. It has caused a wedge in my marriage, I’m often unable to spend quality time with my son due to the fact that I need to work 24 hour shift just to get some money back into this business to pay my liabilities. And the insecurity of the ongoing viability of my business causes me so much stress that I am often unable to sleep and I no longer feel relaxed even when I am not working it is always playing on my mind. Shocked how I could have got it wrong, confusion trying to resolve it, embarrassment facing my clients and my employees.”

The website of Fair Work Ombudsman contains many useful tools:

Robertson Hyetts can provide assistance in identifying the correct wages and conditions and in responding to the FWO in relation to complaints, audits and litigations.  Speak to our employment law solicitors, Jessica Duff or Andrew Pickles today on 03 5434 6666.