Why our small businesses need flexibility in modern awards

This week, Ai Group had the opportunity to express our views to a House of Representatives Committee conducting an inquiry into inhibitors to employment for small business and disincentives to working for individuals.

Small businesses with 1-19 employees account for more than 90% of Australia’s employing businesses, so improving their success and viability is vital to securing higher growth in output, employment, incomes and living standards.

While fostering the formation of new small businesses is critical to better outcomes in innovation, investment and employment, there are some key barriers in the way – including overly inflexible workplace relations structures.

In our recent submission to the Productivity Commission’s inquiry into Australia’s Workplace Relations Framework, Ai Group detailed 10 key problems identified by employers, two of which are of particular concern to small businesses:

  1. Awards are still far too complicated and inflexible; and
  2. It is too difficult and costly to terminate poor performing employees.

The highly prescriptive and inflexible nature of the modern award system is a particular problem for small business employers. Small business employers and their employees are generally reliant on the modern awards system and less likely to have an enterprise agreement. The award system needs to be simpler and less prescriptive for all employers, and this will particularly benefit small business employers.

Also, in some industries such as fast food, restaurants and retail, many employers, particularly small businesses, struggle to keep their doors open because of the level of weekend penalty rates in the relevant awards. Australian consumers expect to be able to go out for a meal, to buy a coffee, or go shopping on any day of the week, and they expect to pay reasonable prices when they do. It is a reasonable expectation. In many cases the employees who work on the weekend in these industries are young people who are not available to work during the week due to study commitments and would be happy with the rate of pay which applies on week days. A high proportion of employees get their first job in the fast food, retail or restaurant industries, regardless of what industry they end up building their careers in.

As the Federal Government has rightly said, the Fair Work Commission is the body that should remain responsible for setting penalty rates because different approaches are necessary for different types of employees in different industries. Awards can cater for these differences much better than legislation or regulations can.

However, the central role of awards and of the FWC in setting penalty rates does not mean that there is no role for legislation. The former Labor Government changed the modern awards objective in s.134 of the Fair Work Act from 1 January 2014 to reinforce penalty rates in awards. The amendment could make it harder for employers to succeed with arguments in the FWC to reduce penalty rates in appropriate cases. As such, section 134(1)(da) of the Act should be repealed.

At present many employers are paying penalty rates due to a lack of working hours’ flexibility in the relevant award. For example, often overtime penalties need to be paid at times that could readily be worked as ordinary time if the hours of work provisions were more flexible and employers were able to roster different employees to work their 38 ordinary hours across a wider band of hours.

Rather than awards becoming more flexible since the modern award system came into operation on 1 January 2010, there is the risk that the trend will be in the other direction. A big problem is the system of 4 Yearly Reviews which encourage unions to dream up and pursue a raft of restrictive and costly claims.

The current 4 Yearly Review started at the beginning of 2014 and is set to continue until at least the end of 2016. The whole process will then start again at the beginning of 2018. In the current Review, the unions are pursuing a series of very costly and restrictive claims through test cases dealing with:

  • Casual employment;
  • Part-time employment;
  • Public holidays;
  • Domestic violence leave;
  • Accident pay;
  • Apprentices; and
  • Other matters.

During the Review, Ai Group is pursuing some changes to make awards more flexible but there are major risks for employers from union claims to reduce existing flexibility and impose higher costs upon employers. The casual and part-time employment cases, in particular, present major risks for employers given the very damaging claims that the unions are pursuing.

It is extremely important that employers do not lose their ability to flexibly engage casuals and part-timers. In its submission to the Productivity Commission Inquiry into the Workplace Relations Framework, Ai Group has proposed an end to 4 Yearly Reviews of Awards.

Another critical area is independent contracting. A high proportion of small business people are independent contractors. It is vital to preserve flexibility in this area and to reject the ill-conceived calls from unions and some other groups to impose more restrictions.

This is an edited version of the opening statement delivered by Stephen Smith to the House of Representatives Standing Committee on Education and Employment in Melbourne on July 13.

Are you a small business struggling with inflexibility in the modern award system? Share your experiences and thoughts below.

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Stephen Smith
Ai Group's Head of National Workplace Relations Policy, Stephen Smith is responsible for workplace relations policy development and advocacy. He regularly represents industry’s views to governments and opposition parties, and in numerous inquiries and major cases. He is Special Counsel for, and Chairman of the Board of, Ai Group Workplace Lawyers, a national law firm operated by Ai Group.

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