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    What is the biggest risk to a business? People

    Jul 22, 2020 2:11:24 PM

    How important are your employees?

    Do you know who is the most productive or who is the most damaging to staff morale?

    Do you know whether you are required to pay redundancies?

    Do you know who has the most leave?

    Do all your employees have an employment agreement?

    Does your business have a handbook of policies and procedures?

    Do you know your exposure if your contractors could be deemed employees?

    People are the most important element to every small business, but they can also be the biggest risk.

    Bad people can create unbelievably difficult headaches and can in some instances prevent a business from adapting to the business environment it finds itself in. This can result in the business failing to adapt and failing to adjust leading to its ultimate demise.

    Employment costs represent on average anywhere between 30% and 50% of a business’s costs. This means that at any one time they can be the single largest creditor in the business. It is critical therefore, in times of economic uncertainty, for businesses owners to be very clear as to their employees and to know exactly what tools are at the business’s disposal.

    There are 4 key things that need to be in place. They are detailed below.

    1. Policies & Procedures

    Like building a house, all good plans start with a great foundation. It is critical therefore for businesses to have documented core policies and procedures. Policies such as leave policies or in recent times Covid-19 policies. Click here if you need a COVID-19 Policy for your office. 

    Can you send a staff member home who has a high temperature? Do you have the power to tell an employee to take sick leave?

    In absence of these core policies you may have to rely upon legislative provisions or even worst the ‘goodwill’ of the employee.

    Having your policies and procedures give you options and allows you to adjust as circumstances demand.

    It is very common for people to try and have everything in the employment agreement rather than in the policies. Policies create flexibility whereas the employment agreement can present a fixed immovable document which can in turn become a stumbling block for agile business change.

    If you do not have a set of core, documented and published policies and procedures you need to get them as soon as possible. Please reach out to our office immediately.

    1. Employment Agreements

    Whilst having policies and procedures is fundamental, it is also important to clearly articulate the role and responsibility of an employee. This can be fundamental in circumstances where that employee needs to be performance managed or there is a question as to their role or obligations.

    An employment agreement should work with the policies and procedures and so should be drafted in the shadow of those policies. It is important that these documents work together, and business owners receive proper legal advice on them.

    The cost to employ, the cost to re-employ and the cost of a bad employee are so incredibly high that a small investment in good documents is worthwhile.

    You would not buy a $100,000 piece of equipment without proper documentation or without proper consideration as to the risks. The same methodology should be applied to the hiring of people.

    We have seen far too often the ‘simplest’ of hires can cause the most damage. We all know that relationships are tricky outside of work. when we overlay humankind with obligations and power issues then it can become an absolute minefield.

    We strongly advise that appropriate employment agreements should be drafted to work with your policies and procedures to protect the business and the business owner. If your employees do not have employment agreements then you need to reach out as soon as possible.

    1. Contractor vs Employee Exposure

    Far too often we have clients come to us and advise that they have no employees as they are all contractors. Upon a deep dive into the relationship between the business and the ‘contractor’ it becomes obvious that from the view of an independent organisation such as Work Cover, ICARE, the Workers Compensation, Revenue NSW or the ATO, it might not be as clear cut as the business owner hopes.

    Employees vs Contractors is one of the trickiest areas of law at the moment. There are different tests that each agency applies with little to no commonality. This is confusing to many business owners, which has resulted in some accountants being caught in the crossfire giving advice on contractors vs employees when they should not.

    The simple answer to this complex problem is to get legal advice. There is no one size fits all approach but rather a web of complex law and cases that need to be considered when determining if an individual or business is a contractor or employee.

    We have seen the following example time and time again.

    The business operates with contractors. An angry contractor goes to the ATO and advises that they haven’t been paid super. The ATO reviews and deems them to be an employee. The business now owes the ATO the super accrued by that contractor. In some cases we have seen that amount be well over $100k. More often than not this amount tips the business into insolvency.

    If you have concerns or do not have a clear understanding of whether your contractors may be deemed employees you need to get advice as soon as possible.

    1. Know your exposure

    Many businesses owners do not have a scenario plan to work out what would be the cost of letting staff go.

    When we consider a restructure or turnaround of a business the first thing we ask the business owner is who are your key staff members? Most of the time they say, “all of them”. This response shows two things: firstly that the business owner doesn’t actually know and, secondly the business owner has never scenario planned.

    When economic shocks occur a business owner has two choices. They can ignore the signs or can see the signs and start to plan different scenarios to ensure the business is given the best chance to survive.

    Letting staff go can be extremely expensive and costly but not letting them go can have even more dire consequences. It is extremely important for business owners to understand:

    • Do they have to pay a redundancy?
    • What is the cost of letting the staff go?
    • What is their leave entitlements?
    • Do I have to pay long service leave?; and
    • Are they the right person to let go?

    If you are a business owner and do not know the answer to the above questions then you need to get urgent advice.

    At Frank Law our Restructuring and Turnaround team work closely with our Employment team to ensure that a business owner fully understands what options they have, what tools are at their disposal and what risk are present and real.

    So, if you answer no to any of the following please urgently contact us for a FREE Review, Advice and Strategy Session.

    • Does your business have a handbook of policies and procedures?
    • Do all your employees have an employment agreement?
    • Do you know your exposure as to whether your contractors could be deemed employees?
    • Do you know who has the most leave?
    • Do you know whether you are required to pay redundancies to?

    Please click here to schedule the FREE Review, Advice and Strategy Session.

    This is not legal advice.