Walking the tightrope: Balancing Legal Obligations with Business Cycles
The good news is you have more flexibility than you thought. As CEO in these resource constrained times, you can walk the employment tightrope to deliver desired business outcomes if you understand what resourcing strategies you have available to you, know the laws and guidelines, and set a plan.
A strategy to retain existing employees is a no-brainer to overcome potential resourcing issues, but there other effective resourcing strategies you can employ to manage the peaks and troughs whilst not going broke or ending up in court. Being informed and knowing where to go to get information is often the best response to any of these situations.
With this in mind we sat down with Herbert Smith Freehills Partner, Michael Coonan, who specializes in industrial relations law.
Employment, part-time or full-time, is a fixed commitment, but many businesses are seasonal or cyclical- what strategies can businesses employ to link their employment levels with business capacity?
“That’s the million-dollar question amongst every business at the moment. Workforce planning these days it best done with a core workforce you can use all the time and a flexi workforce that you can scale up and down depending on cycles.
“There are number of ways you can use flexi workforces:
– labour hire
– Fixed term contractors (employed for a set time period)
– Fixed task contractors (employed for the duration of a project or task)
“There is also a growing service, particularly in professional, technical and administration services, for a hybrid: a business that offers access to a pool of professionals who aren’t looking for full-time or permanent work but actually prefer project-based work. Businesses can access this pool of professionals as consultants, part-timers or whatever employment capacity you and they agree upon. It is more than labor hire, but not full consultancy.
“The secret is in knowing what is going to be your core workforce levels, and what is going to be your flexi. Too much core workforce and you are carrying an overhead you don’t need to carry. Too much flexi workforce and you have no continuity and more reading in costs (or getting-up-to-speed costs).”
What are the risks associated with hiring a flexi workforce?
“The problem with labor hire is always quality, continuity and commitment. There are also financial considerations to take into account with labor hire as you are not just paying a wage and overheads, but are also paying a profit margin, overheads and administration for the labor hire company. If you have costed it properly and you manage it correctly, it can work well for many businesses. In fact, labor hire companies are one of the few growing businesses in Australia at the moment.”
“Casuals suit certain demographic and business type. For all the noise about Gen Y and Gen Next preferring short employment terms and multiple employers, just as casuals hired by professional businesses are stay at home mothers who are happy to be called in on big projects – knowing that it isn’t a long-term or full-time commitment.
“The problem with hiring casual staff for any length of time, is if a modern award applies, and more than likely one will, there is a provision that after 6 months of employment you are required to offer them full time employment, and the onus is on you to prove why you shouldn’t. Additionally, if they are long-term casuals (which is defined as over 12 months of service on regular hours) they have unfair dismissal rights. So one of the benefits of having long term casual staff – that you can flex up to use them for specific projects- is nullified to some degree”
Fixed Term Contractors
“The issue with fixed term contractors, if they are truly fixed term, is if something disastrous happens and you no longer need them for the entire term, there is a contract that you have a commitment to. But the law provides a solution to this: you call them maximum term contactors and hire them for a maximum term. So instead of a contract that concludes on July 31, they are hired until you give them notice, or July 31 whichever comes first.”
“The problem with consultants is a legal risk one. Current laws from the last Labor Government applied many aspects of employment laws such as Superannuation, Workcover and Payroll Tax laws to dependant contractors and even independent contractors. For instance, Superannuation law you think only applies to employees – the act itself says it applies to certain types of consultant contractors. So you have many of the same overheads that you have for an employee, without the benefit of continuity and commitment But if hired for the right reasons and on the right projects, they remain a valid flexi option.”
“The problems surrounding employing independent contractors are the tax, legal and industrial issues. The biggest minefield for businesses employing independent contractors is the sham contracting provisions under the Fair Work Act 2009.
“The Act makes it an offence to label someone who is an employee as a contractor. The many and confusing criteria that determine if an independent contractor is an employee or contractor are set out on the Fair Work website, but it all depends on the ruling of which Judge you get, what day it is, and what the Judge ate for breakfast. The maximum penalty is $33,000 and if you are found to have been employing someone as a contractor who is really an employee you have to backdate pay, sick leave and annual leave, superannuation, payroll tax etc. This is of particular concern in the economic times we are in. During the boom, everyone wanted to be a contractor because of the tax breaks and financial benefits, but now the economy is tighter there are increasing claims from people who have suddenly decided they want to be employees again, and now claim they are eligible for back-dated leave and superannuation. If you know the correct way to hire a contractor and follow the guidelines you can manage the risks.”
Getting the capability / resourcing mix ‘just right’ is difficult. Sometimes you get it ’just wrong’. Some people simply don’t work out. How do you manage those occasions fairly and within the legal framework?
“There are two answers – the practical one and the legal one.
“The legal one: there is a complex matrix of laws. First of all the unfair dismissal laws: generally Commissioners accept that if an employee is not working out they need to be given two, if not three, chances. And it is not just a case of saying, ‘You are not working out, pick up your act.’ The requirement is to go and speak to the employee, tell them what they are doing wrong, tell them how you want them to fix it, and ask them what they help they want from you as an employer to fix it.
“Then you add in the bullying laws, add in the adverse action laws, and then you have the Workcover laws which say that if you speak to an employee and they get stressed about it you are on the receiving end of a a Workcover claim. Your actions may have been fair and reasonable and you may win this claim, but it can take you years of legal battles and lots of money to win.
“In the practical sense it is easier for small business than what I have just indicated. Big business has systems to handle these requirements, whereas small businesses do not. That is why small business has access to the Small Business Code of Conduct. Again there is a sort of “three strikes and you’re out” requirement, but not an expectation from the courts for the same level of complexity as a medium or larger business. It is the businesses in the middle that cop the raw end of the pineapple.
“Mid-sized businesses are where the practical answer comes into play. My experience of mid-tier businesses is that they end up paying ‘go-away-money’. The employee knows and the courts know that you can’t really reestablish a relationship that has broken down. They invariably award compensation to the employee and you have to pay that in addition to $30,000 – $40,000 of legal fees. You don’t want to have to pay all that, let alone devote the necessary precious business time to it. So that’s why ‘go-away-money’ exists – even if the Fair Work Commission continues to deny its existence.
“In a practical sense, I have always found that being up front with employees is best: “it’s not you, its not me, it’s us – we just don’t mix.” Honesty is the best policy but you do have to say ‘it’s us’ in the right way. Speak to your lawyer or advisor before you have any conversations with your difficult employee to make sure you say the right thing.”
If businesses have too many existing staff and not enough work in the short term, but know that business is due to pick up in the mid-term, is redundancy the best option?
“The problem with making people redundant is you have to find money for redundancy packages and annual leave at a time your cash flow is already hurting. The best solution is to go to your employees and explain the situation. Offer them the option of taking leave (annual or long service), taking unpaid time off for travel or study, or offer flexible working arrangements (for example part-time). Any size business can offer these options to their employees and their employees can refuse. But it’s a conversation you should have.”
Talking retention strategy – How do you ensure you won’t be left high and dry if your good core staff leave because they are unhappy during a busy period?
“Again there is a legal and a practical answer. Legally you can tie them up with fixed term contracts, “golden handcuff” clauses, restraint clauses (although this doesn’t stop them leaving you, it just stops them taking your business to a competitor), and notice clauses. None of these answers really inspires your employee to loyalty and discretionary effort.
“With all retention, part of it is money, but it’s also rewarding work, independence, and some certainty. It is a case of finding the right mix. It’s not always money or rewarding work that will be the best retention strategy, you need to find solutions that work for individuals.”
As a small or medium business owner where can you go to get information to help guide your resource management?
“There are a heap of websites, books, and journals you can refer to. Law firms also provide regular bulletins on specific legal topics. Then there is the Small Business Association, Family Business Association and employer groups – but most of those you will pay a membership fee, consultancy fee or both.
“Fair work is trying to provide resources but I have found their website to be very unhelpful for a small business owner.
“Smaller businesses have accountants who can advise them or refer them onto an appropriate consultant (which is easier said than done because the quality is variable). Consultants can be a lawyer, accountant, or management consultant and there are lots of specialized HR consultancies that specialize in Fair Work cases. But, again, the quality is variable so try to get recommendations off someone you trust.”
What is your best piece of employment advice?
“Talk to your people. It is an old saying: do what you say and say what you do. Be honest and open with them. The more you talk to your people the better your culture is. That doesn’t mean ‘suck up’ – but hard messages are best delivered assertively and without aggression and IN PERSON. Learn how to constructively deliver a hard message. Communicating with your staff consistently over a long period of time inspires loyalty. Some people have the skill, some people don’t and never will, but most can be taught it. And it’s the people who don’t that generate a lot of my business.”
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