HUMAN RESOURCES 10 MOST IMPORTANT FINANCIAL IMPLICATIONS OF THE FAIR WORK ACT. Paper CONTENTS

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1 HUMAN RESOURCES 10 MOST IMPORTANT FINANCIAL IMPLICATIONS OF THE FAIR WORK ACT CONTENTS Page 1. Timeline of Changes Implication No Months Parental Leave Implication No. 2 - Cashing Out Of Annual Leave and Paid Carer's Leave Implication No. 3 - Payment on Dismissal Implication No. 4 - Redundancy Pay Implication No. 5 - Sham Contracting Implication No. 6 - Modern Awards Implication No. 7 - The New Unfair Dismissal Laws Implication No. 8 - Collective Bargaining in Good Faith Implication No. 9 - Fair Work Australia Implication No Transfer of Business Rules Professional Advice... 5 ADDENDUM Addendum A - Small Business Fair Dismissal Code Checklist... 6 Page 1

2 HUMAN RESOURCES 10 MOST IMPORTANT FINANCIAL IMPLICATIONS OF THE FAIR WORK ACT Paper Disclaimer This article has been provided By Adrienne Unkovich, MD, Workforce Guardian Australia s number one online employment relations service and is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice may be necessary in particular transactions or on matters of interest arising from this article. Workforce Guardian Pty Ltd is not responsible for the results of any actions taken on the basis of information in this article, nor for any error or omission in this article. The Fair Work Act became fully operational on 1 January The Act replaced the Workplace Relations Act 1996 and established the framework for Australia's new, national industrial relations system. The implications of this new Act for Australian businesses are varied. While most attention is focussed on the industrial relations-related aspects of the new system, attention should also be given to the considerable financial implications of the Act on employers. In 2009 Workforce Guardian participated in research conducted by AMR Interactive which found 4 out of 5 Australian small and medium-sized businesses were not prepared for the new Fair Work laws. It is essential that businesses understand these financial implications and are able to access appropriate tools, processes and practices to ensure compliance and proper budgeting. 1. Timeline of Changes The Fair Work Act became fully operational on the 1 January The Act replaced the Workplace Relations Act 1996, often referred to as Work Choices, and established Australia's new industrial system. Stage 2, which commenced on 1 July 2010, saw the commencement of the new Modern Award System and the 10 new National Employment Standards (NES). These all carry significant financial implications for Australian businesses. Timeline of Changes: 1 July 2009: most parts of the Fair Work Act commenced 2 1 July 2010: Modern Awards and NES 2. Implication No Months Parental Leave Under the NES, all workers within the national industrial relations system (except casuals) are entitled to apply for up to 12 months unpaid parental or adoption leave once they have performed 12 months of continuous service to their employer. Page 2

3 The employee may request an additional 12 months of unpaid leave (bringing the total period of leave up to 24 months) and the employer may not unreasonably refuse this request. 3. Implication No. 2 - Cashing Out Of Annual Leave and Paid Carer's Leave The NES grants all employees a minimum of 4 paid weeks of leave per year of service. This is increased to 5 weeks for shift workers. Modern Awards and Enterprise Agreements may include provisions allowing for the cashing out of unused leave, provided the employee retains a balance of at least 4 weeks. The NES also grants employees a minimum of 10 paid carer s and personal leave days per year. These may also be cashed out where an award or agreement allows this, provided the employee retains a balance of at least 15 days. 4. Implication No. 3 - Payment on Dismissal Under the legislation, employees must be advised of their dismissal in writing and provided with a minimum period of notice - or payment in lieu of that notice based on continuous service in accordance with the following table: Less than 1 Year = 1 week 1 Year to less than 3 years = 2 weeks 3 years to less than 5 years = 3 weeks More than 5 years = 4 weeks Employers should set aside sufficient funds to meet these obligations. 5. Implication No. 4 - Redundancy Pay Traditionally, redundancy pay entitlements have been set out in awards or agreements. However under the NES, these entitlements are set out in the general law. The minimum entitlements based on years of continuous service, will be as follows: 1 to less than 2 = 4 weeks 2 to less than 3 = 6 weeks 3 to less than 4 = 7 weeks 4 to less than 5 = 8 weeks 5 to less than 6 = 10 weeks 6 to less than 7 = 11 weeks 7 to less than 8 = 13 weeks 8 to less than 9 = 14 weeks 9 to less than 10 = 16 weeks At least 10 = 12 weeks * * N.B. long service leave entitlements provide the rationale for diminishing the redundancy pay entitlement for employees who have a period of 10 years continuous service or greater. Note that small businesses (those with fewer than 15 FTEs) are exempt from this provision so it s critical to know if you are a big business or a small business for the purposes of applying the Page 3

4 NES. 6. Implication No. 5 - Sham Contracting Sham contracting refers to attempts by employers to disguise a traditional employer/employee relationship as a contracting arrangement in order to avoid payment of workcover, superannuation and other employee entitlements. The new Act makes it clear that sham contracting arrangements will continue to be investigated and prosecuted by Fair Work Australia. Many employers incorrectly believe that if their employees obtain an ABN they may be treated as a contractor, but this is incorrect. Fair Work Australia will consider all of the circumstances surrounding the relationship between the business owner/operator and the contractee to determine whether it is really one of employer/employee. Heavy penalties apply to employers who engage in sham contracting practices. 7. Implication No. 6 - Modern Awards Modern Awards have replaced existing awards from 1 July These are largely industry based and have reduced the overall number of awards from around 4000 to just 130. Importantly, Modern Awards will cover a huge range of employees. It is essential that you know what the applicable new Modern Award means for you and your business. Remember, Modern Awards are not just concerned with basic pay rates - they also set out other employee entitlements, such as casual and part-time loadings, penalty rates and shift allowances. All of these have the potential to seriously impact a business bottom line. 8. Implication No. 7 - The New Unfair Dismissal Laws Significant changes were introduced on 1 July 2009 to the rules relating to unfair dismissal. Under the previous legislation, businesses employing fewer than 100 employees were exempt from unfair dismissal laws, but this exemption has now been abolished. This means almost all employees are now entitled to lodge an application for unfair dismissal if they feel their dismissal was harsh, unjust or unreasonable and they had worked for the employer for the minimum employment period. This period is set at 12 months where the employer has fewer than 15 full time equivalent employees (i.e. it is a small business ) and 6 months in all other cases. If a dismissal is found to be unfair employers may be forced to either rehire the employee and pay them their lost wages and entitlements, or pay the employee compensation. Compensation is capped at the lesser of 26 weeks pay or $54,150 (this being half of the high income threshold). You should ensure to document every important interaction with employees to ensure you are able to produce records in support of your decision to dismiss an employee. The new Act also introduced the Fair Dismissal Code which, if carefully followed by a small business employer when dismissing an employee, will result in the dismissal being considered fair. If you are a small business, you should use this Code and its checklist every time you dismiss an employee. Please refer to Addendum A. Page 4

5 9. Implication No. 8 - Collective Bargaining in Good Faith Under the Fair Work Act, all negotiations in relation to the creation of new Enterprise Agreements must be conducted in good faith. To ensure you meet this requirement you should review your current practices and either obtain appropriate training or engage a professional bargaining representative. Either of these options will require an outlay of funds, but it will be money well spent as failing to bargain in good faith could be extremely costly. 10. Implication No. 9 - Fair Work Australia Fair Work Australia (FWA) is the new national industrial relations regulator which replaced the Australian Industrial Relations Commission (AIRC) on 1 July FWA s powers are broader than those which were granted to the AIRC and include the ability to convene single, compulsory conferences or hearings to resolve disputes. As a general rule employers will be expected to represent themselves. 11. Implication No Transfer of Business Rules The Fair Work Act introduces a number of important changes in relation to the transfer that is, the buying and selling of businesses. One of the most important of these changes concerns continuity of service. A new owner of a business may decide not to recognise the period of service performed by employees for their previous employer, when calculating their length of service, to determine dismissal entitlements. However, the new employer must inform employees of this in writing before the new period of service commences, otherwise their previous service must still be included in any calculation. 12. Professional Advice If you need further information and advice regarding the new employment laws, please contact your Professional Accountant or Workplace Guardian at or phone Page 5

6 Addendum A - Small Business Fair Dismissal Code Checklist It is in the interests of the employer to complete this checklist at the time of dismissal and to keep it in case of a future unfair dismissal claim. However, it is not a requirement of the Fair Dismissal Code that the checklist be completed. SMALL BUSINESS FAIR DISMISSAL CODE CHECKLIST:- YES NO 1. How many employees are employed in the business? (Include full-time, part-time and regular long-term casual employees as well as the dismissed employee and any other employee dismissed at the same time). Under 15 employees 15 employees or more [If under 15 employees, the Fair Dismissal Code applies 2. Has the employee been employed in this business as a full-time, part-time or regular casual employee for 12 months or more? 3. Did you dismiss the employee because of genuine redundancy as set out in the Code? If Yes, explain the reason for the redundancy:- (for example, economic downturn, introduction of new technology therefore requiring less staff, or another such reason) 4. Do any of the following statements apply? I dismissed the employee because I believed on reasonable grounds that: a. The employee was stealing money or goods from the business. b. The employee defrauded the business. c. The employee threatened me or other employees, or clients, with violence, or actually carried out violence in the workplace. d. The employee committed a serious breach of occupational health and safety procedures. 5. Did you dismiss the employee for some other form of serious misconduct? If Yes for what reason? If you answered Yes to any question in parts 3, 4 or 5, you are not required to answer the following questions. Page 6

7 6. Did you dismiss the employee because of the employee s unsatisfactory conduct, performance or capacity to do the job? If Yes:- Did you clearly warn the employee (either verbally or in writing) that the employee was not doing the job properly and would have to improve his or her conduct or performance, or otherwise be dismissed? Did you provide the employee with a reasonable amount of time to improve his or her performance or conduct? If yes, how much time was given? Did you offer to provide the employee with any training or opportunity to develop his or her skills? Did the employee subsequently improve his or her performance or conduct? Before you dismissed the employee, did you tell the employee the reason for the dismissal and give him/her an opportunity to respond? Did you keep any records of warning(s) made to the employee or of discussions on how his or her conduct or performance could be improved? Please attach any supporting documentation. 7. Did you dismiss the employee for some other reason? If yes what was the reason? 8. Did the employee voluntarily resign or abandon his or her employment? If yes, please provide details For more information please contact Workplace Guardian at Page 7

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