Fair Work Australia – Action Over Contractor
A recent court case, involving Fair Work Australia and a business, has highlighted the necessity for businesses to be very careful, relative to the classification of people who work for the business. There are legal implications if classifications are incorrect.
The employment relationship revolves around 'control'. In a normal employer-employee relationship, the employer has the ability to control how work is done by the worker.
The type of relationship with an independent contractor, is that the business principal will not have 'total control' over the work being undertaken by an independent contractor. The contractor is responsible for his/her own performance, and the supply of tools, equipment, devices and materials to the job site.
Another very important test, as to whether a worker is an employee or a contractor, is how 'prominent' the worker figures in the organisational chart/structure for the business. If the person is branded as part of the organisation, it would probably be difficult to argue that the person is not an employee. If they are a contractor, they should be retaining their own identity.
Some years ago, the Australian Taxation Office introduced an 80% rule, as a way of trying to regulate the deductions for PAYG tax, but that is not the prime determination of Fair Work Australia.
In a recent court case, the Fair Work Ombudsman claimed a 'sham contract'. The Ombudsman claimed the 'people' were employees and not contractors.
Fair Work Australia has the right to prosecute 'employers', and they did so in this case, on the basis that Fair Work Australia alleged the persons were not contractors and that they were employees. The court found that the 'people' were not contractors but employees, and fined the business $170,000, and the company director who was responsible for the engagement of the persons, $28,000.
Fair Work Australia targets various industries from time to time, and may demand to see employment records. Complaints can also be made to Fair Work Australia by disgruntled employees, past or present.
The message in this case is, employers need to be very careful in hiring people who are going to be regularly involved with the business, and who will be accepting directions from the business' management relating to the performance of their duties. Management should ensure that proper systems are in place, to ensure that a potentially 'dubious engagement' is referred to senior management before being finalised. Questions might relate to:
• The 'person's' estimated working hours per week.
• The control and reporting obligations of the 'person'.
If the 'person' is being engaged on similar terms and conditions to those which relate to a 'normal employee', then senior management should seriously consider whether it's worth the risk to engage someone as a 'contractor'.
The employer could also face action from the Australian Taxation Office, because PAYG tax has not been deducted, and superannuation has not been paid. This is a real area of 'risk management' for businesses. It is advisable that, any person engaged under independent contractor agreements, should be reviewed every six months, to ensure the engagement process is appropriate for the work being undertaken by the 'person' during that time.
When engaging a 'person', who you believe is a legitimate contractor, it is very important to document the contractual obligation; who will the 'person' report to, what are the contract milestones and how are they going to be paid. Proper written documentation is also required between the employer and the contractor's entity, which clearly identifies the commercial agreement that has been reached.
Another area that the employer should be monitoring closely is the situation where a decision is made to terminate an employee, and then engage that former employee as a contractor within a reasonably short period of their termination as an employee. This is a high-risk area that needs to be closely managed and scrutinised to ensure the person being engaged as a contractor is a legitimate contractor. Does the new contractor have:
• public liability insurance;
• come and go as they wish;
• sickness and accident insurance;
• report as a contractor;
• professional indemnity insurance (if appropriate);
• milestones that are achieved;
• supply own tools, computers and research materials;
• are they responsible for rectification of defects;
• are they being supervised on an hourly basis, as if they were an employee?
If you have any questions relating to the engagement of an independent contractor, please do not hesitate to contact us.
Succession Planning – Have You Thought About It?
Succession planning is a very personal thing for most business operators. Firstly, you need to consider what you want to achieve from the business. This could include:
• Creating a legacy?
• Could you hand the business on to another family member to run?
• Develop the business so you can move on to another business?
• Could you appoint an external CEO to run the business on behalf of the family?
• Providing inheritance to your children and your grandchildren?
• Could you negotiate a 'trade sale' with a competitor or large organisation?
• Getting the business ready for sale so you can sell and retire?
• Do you want to develop the business so you can undertake an Initial Public Offer (IPO) to list on the stock exchange?
• Have you thought about your options for exiting the business?
• Do you think the business is 'exit ready' or 'succession ready'?
• Would a partner buy you out?
• What retirement needs do you have that will need to be supplied through the business?
• Could you introduce a new partner/shareholder into the business and then exit?
• Will the business survive with the reduced reliance on 'you'?
Items which might affect 'you' and the business include:
• is the business name your name?
• a large percentage of the clients perceive that they have a direct link to you; and
• could you effectively make yourself 'redundant', to enable other team members and management to take over the roles previously undertaken by you?
These are some of the questions that need to be considered in planning a succession strategy for business operators. If you would like to have a discussion with us relative to your succession planning, please do not hesitate to contact us.
Characteristics Of A Well Run Business – Part 2
You need excellent systems that give you current information on:
- bank balance;
- work in progress;
- sales made yesterday;
- debtors' days outstanding;
- amount owed by debtors;
- amount owed to creditors;
- stock on hand;
- last week's results compared to budget;
- stock turn; and
- cashflow problems likely to be encountered in the future.
Analysis Of Results
- analysed monthly financial accounts (including detailed profit and loss account);
- comparison of periodic financial accounts to budgets and cashflow forecast;
- key performance indicator report for every segment of the business;
- benchmarking comparison to other businesses in your industry; and
- regular team meetings to analyse performance.
Lifetime Value Of A Customer
Businesses need to ensure that there is ongoing education of their team on the lifetime value of a new customer.
Customers represent repeat business. Repeat business equals profit. Businesses need to install appropriate systems so every customer becomes a lifetime customer.
Many businesses find that, with good service, a customer will stick with them for 7-10 years. If you assume that the lifetime value of a customer is 7 years on average, multiply the average sale by the number of times you expect to see the customer each year, and then multiply the projected annual sale by the number of years expectancy for 'lifetime value'. This will give you an idea of what the customer's potential worth is to your business.
One of the most effective ways of marketing your business is to increase the number of visits your long-term customers make to your business. This will add to the lifetime value of your customer.
To develop lifetime value of customers, you could consider the implementation of a referral system, where current customers are encouraged to refer new people to your business, with an appropriate incentive being given to the referees. This could be a 'lucky weekly prize' or a discount on a product in your business.
How do you develop lifetime customers?
• Improve your referral system.
• Create outstanding service to all customers to encourage them to become lifetime customers.
• Create a database of customers and offer them outstanding service.
• Keep improving your level of service.
• Ensure your product is still relevant in the current market.
• Products quality control standards are always of a high standard to ensure returns are minimised.
• Offer special events and promotions to your customers.
• GO THE EXTRA MILE!
• Get them to say "WOW!"
Keep On Marketing
In difficult economic times, it is tempting to stop marketing. However, if you wish to take advantage of the business upturn when it arrives, you have to be thinking differently, to take advantage of the changed economic circumstances.
• Why not consider giving guarantees on your products or services?
• Have a vision. Don't try to be 'all things to all people'.
• You don't need to spend huge sums of money on advertising.
Have you considered being proactive with the use of public relations and communications, by issuing well-prepared news releases on products/services/activities that your business is undertaking? The news release could be sent to your local news outlet, included in a newsletter, and placed on your website.
If you have some slow moving stock, is it possible to package that stock with other stock items and sell the total as a packaged product?
Have you explored the opportunities of marketing your business, in conjunction with other businesses in your area, whereby you share the customers and jointly market and promote the businesses?
You need to be thinking differently in the current economic conditions, by being proactive in marketing, public relations, communicating with the market and targeting products and services directly to specific customer segments.