1. Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Legal and Taxation Aspects of Your Small Business 3 rd Edition `08 IAN.BIRT

2. 2 Chapter:13 Workplace Regulation Legal and Taxation Aspects of your Small Business IAN BIRT

3. Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia Objectives After reading this chapter, you should be able to: –Outline and recognise the applicable industrial relations system for your business –Explain the contractual nature of the employment relationship –Identify and describe various statutes that affect employment

4. The Industrial Relations System  IR system has processes for regulating dealings between employers and employees over industrial matters: –Pay rates –Working conditions  There is a federal IR system as well as various state systems  The Territories and Victoria (by electing to do so) operate under the federal system Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

5. Industrial Relations Law  The Workplace Relations Act 1996 (Cwlth) establishes the federal IR system and is the main Commonwealth IR legislation  The Act is enforced by the Commonwealth Office of the Workplace Ombudsman www.wo.gov.au www.wo.gov.au  The Australian Government Workplace Authority also provides information and advice about complying with the legislation www.workplaceauthority.gov.au www.workplaceauthority.gov.au  Except in Victoria, each state also has its own industrial relations Act which establish the IR system in the state  Each Act is enforced by the relevant local IR authority - see Table 13.1  Other state legislation relating to: Occupational health and safety Long service leave Workers compensation Anti-discrimination is not affected by IR legislation Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

6. IR Acts and Authorities Table13.1- IR ACTS AND AUTHORITIES Federal/ State IR ActIR authorityWebsite address CwlthWorkplace Relations Act 1996(Cwlth) Commonwealth Office of Workplace Services www.wo.gov.au NSWIndustrial Relations Act 1996(NSW) NSW Office of Industrial Relations www.industrialrelations.nsw.gov.au QldIndustrial Relations Act 1999 (Qld) Qld Department of Employment and Industrial relations www.deir.qld.gov.au WAIndustrial Relations Act 1979(WA) Consumer and Employment Protection (WA) www.docep.wa.gov.au SAFair Work ACT 1994 (SA) SafeWork SA www.safework.sa.gov.au TasIndustrial Relations ACT 1984(Tas) Workplace Standards Tasmania www.wst.tas.gov.au Note: Victoria, the ACT and the Northern Territory operate under the Commonwealth IR System Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

7. Industrial Relations Bodies - 1 The three main bodies established under the federal Workplace Relations Act 1996 (Cwlth) are:  Australian Fair Pay Commission - www.fairpay.gov.au Periodically sets National adult minimum wage & Minimum pay rates, including casual loadings, for different classifications of workerswww.fairpay.gov.au  Australian Government Workplace Authority www.workplaceauthority.gov.au www.workplaceauthority.gov.au checks and accepts lodgements of federal workplace agreements  Australian Industrial Relations Commission (AIRC) - www.airc.gov.au whose role includes: www.airc.gov.au Making federal awards Determining unfair dismissal claims Resolving industrial disputes under federal law Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

8. Industrial Relations Bodies - 2 Role of State IR Commission:  Making state awards  Approving state-registered workplace agreements  Resolving industrial disputes involving state awards or workplace agreements  Determining unfair dismissal claims under state IR legislation Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

9. Industrial Relations Bodies - 3 Appeals:  Appeals against decisions of the AIRC are made to the Federal Court  State IR legislation establishes the relevant state IR commission (except in Victoria)  Appeals against decisions of state IR commissions generally go to the relevant state industrial court Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

10. Awards An award is a legally enforceable order by an IR commission that sets minimum pay rates and working conditions for a particular job classification over a fixed period  A system of awards applies at both the federal and state level for specific occupations: Federal awards are made by the AIRC State awards are made by the relevant State IR Commission  Only a restricted number of allowable matters that can be included in federal awards: e.g. ordinary hours of work, loadings, penalty rates, monetary allowances  Relevant awards are legally binding on employers and employees  If a federal award conflicts with a state award, the federal award always prevails  Awards may apply in workplaces without formal workplace agreements in operation Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

11. Workplace Agreements Federal and state IR legislation allows employers and employees to directly negotiate formal written workplace agreements for fixed periods, setting out the terms and conditions of employment  Different types of agreements under the legislation  Some must be approved by the appropriate federal or state IR body  When agreements approved, they are binding upon employers and employees  Federal IR laws provide for an Australian Workplace Agreement (AWA) –A signed individual contract of employment made between an employer and an employee  Other types of federal workplace agreements available include: –Employee collective agreements –Union collective agreements  Federal workplace agreements are lodged with the AWA within a prescribed period  State-based workplace agreements are known by various names, depending on the state, including: –Enterprise agreements –Certified agreements –Industrial agreements  Such agreements apply to a specific workplace or industry, not an occupational group Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

12. Record Requirements  IR legislation and relevant regulations require employers to keep detailed records of: Work time Leave taken Remuneration for employees  The maintenance of a combined time and wages book satisfies these requirements  Records required under IR legislation must generally be retained for seven years Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

13. Which IR System Applies?  Recent changes to the Workplace Relations Act 1996 (Cwlth) are aimed to encourage direct negotiation between employers and employees in a national IR system  As a result, federal IR laws now apply to: – Employees in the territories – Commonwealth government bodies/agencies and their employees – Employers with employees involved in specified interstate or international trade and commerce – Most employers and employees in Victoria Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

14. Transitional Arrangements  A transitional agreement for up to three years applies to company employers with employees covered by a state award or state workplace agreements  Company employers already operating with employees covered by a federal award remain in the federal IR system  Unincorporated employers - e.g. sole traders and partnerships - with employees covered by a state award or agreement stay in the state IR system  Unincorporated employers with employees already under a federal award will be covered by state IR laws after a five-year transitional period Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

15. The Employment Relationship  The employment relationship is contractual. Under a contract of employment, employees can be full-time, part-time or casual  The terms or contents of the employment contract are the promises agreed upon by the employer and the employee  Any employment contract will usually contain the terms of employment Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia FIGURE13.1 - TERMS TYPICALLY INCLUDED IN AN EMPLOYMENT CONTRACT Employment contract Express terms Implied terms written verbal Statutory entitlements Award provision Common law duties

16. Express Terms  There will be express terms in every employment contract: –These are promises that the employer and the employee both agree to at the start of employment  Express terms can be written or verbal and include: –Job tasks and duties –Pay rates (ordinary and overtime) –Hours of work –Times of work –Allowances and fringe benefits –Bonuses –Leave entitlements – e.g. holidays, long service, sickness –Pay method and frequency –Meal and break times –Public holidays –Training –Review periods Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

17. Implied Terms Employers and employees owe common law duties to each other  An employer’s duties at common law include duties to: –Maintain a safe workplace and safe work systems for employees –Pay wages to employees –Be legally responsible for employees’ actions in the course of their employment  An employee’s duties at common law include duties to: –Work competently –Maintain confidentiality –Obey any reasonable and lawful work directions that are within the scope of employment Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

18. Breach of Terms  Under common law, employers or employees can sue each other if terms of the employment contract are breached  The person suing may be able to seek: –An order to end the contract –An order for damages –An injunction requiring someone to do or not do something  Employers that do not comply with statutory entitlements and award minimums for employees: –Can be sued by employees for unpaid sums –Can also be prosecuted by relevant authorities, resulting in heavy fines Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

19. Employee or Independent Contractor? Businesses can engage self-employed service providers to work as independent contractors - Called ‘outsourcing’  A work arrangement will be either: –Contract of service: Contract of employment between an employer and an employee that establishes an employer/employee relationship –Contract for services: Contract made between a client payer and an independent contractor for labour services  Differences between employee and independent contractor in any work arrangement: –Industrial awards apply only to employees –Employers generally required to arrange workers compensation insurance for employees only –Employees have statutory entitlements for annual holidays, long service leave, sick leave and workers compensation –Employers are liable to pay payroll tax, compulsory workers compensation insurance premiums, fringe benefits tax and pay as you go (PAYG) tax withholdings for employees –Employers are legally responsible for the actions of employees during employment Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

20. Factors to Consider In determining whether a worker is an employee or an independent contractor, all the following factors should be considered - no one factor is conclusive:  Degree of control: Who tells the worker how to do their work?  Written agreement:What does any written agreement say?  Remuneration method:What is the frequency and means of remuneration of the worker?  Tax treatment: What tax is withheld from payments to the worker?  Working hours:Who chooses the working hours of the worker?  Tools of trade:Who supplies the tools or equipment for work?  Choosing replacements:Can the worker choose a replacement to do the work?  Other employment:Does the worker work for anyone else?  Operating structure:What operating structure or business name does the worker work under? Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

21. Termination of Employment  At common law, the contract of employment can be terminated by either the employer or the employee  Either party must give reasonable notice to the other  A reasonable notice period is generally based on the pay period  If the employee is paid monthly, for example, then one month’s notice should be given  Employers requiring a terminated employee to leave immediately must make payment in lieu of (instead of) notice: This payment is the amount the employee would have earned during the notice period If payment in lieu of notice is not offered by the employer, the employee must work for the notice period, otherwise their right to payment is lost  The notice period is subject to any minimum period prescribed in the relevant award, applicable workplace agreement or existing fixed-term contract that applies  The Workplace Relations Act 1996 (Cwlth) and relevant state IR Acts set a minimum period of notice required based on the employee’s period of service for workers covered under the legislation Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

22. Termination Without Notice  Under common law, termination without notice is permitted where the other party has committed a fundamental breach of the employment contract  Termination without notice - or payment in lieu of notice - is justified by an employee where to do the work would jeopardise the employee’s life or health  An employer can instantly dismiss an employee without notice for continuing ‘serious misconduct’  Serious misconduct includes: –Gross disobedience –Deliberate refusal to obey a reasonable and lawful direction –Incompetent work performance –Dishonesty –Intoxication –Offensive language or behaviour  The federal Workplace Relations Act and state IR legislation also allow for instant dismissal of an employee for serious misconduct Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

23. Unfair Dismissal - 1 The Workplace Relations Act 1996 (Cwlth) prohibits unfair dismissal of employees The fairness of any dismissal will depend on the particular situation  An unfair dismissal occurs where the termination was: –Harsh –Unjust –Unreasonable in the circumstances –Was made on discriminatory grounds  Factors to consider in determining whether there is an unfair dismissal: – Were valid reasons given for the dismissal? – Was an opportunity given to the employee to explain himself or herself? – Were sufficient warnings given for unsatisfactory performance? At least three written warnings are generally considered acceptable – Was the termination on the basis of unlawful discrimination such as race, colour, age or gender? Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

24. Unfair Dismissal - 2 Several things employers can do to minimise unfair dismissal claims: –Employers can require new employees to work for a probation or trial period before offering them permanent employment –The employment of unsatisfactory employees can be terminated at any time during reasonable probation periods –Regular two-way job performance evaluations of employees should also be conducted –Employers should keep written records of evaluations, memos, warning letters, termination notices and any other employee correspondence Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

25. Unfair Dismissal - 3 Federal unfair dismissal legislation covers employees under federal awards and workplace agreements, employees who are employed by either corporations or the Commonwealth government and employees employed in the territories or Victoria  Following employees are excluded from the protection of unfair dismissal law: –Seasonal workers –Employees on fixed-period contracts –Casual employees employed for less than 12 months –Employees on probation (trial) periods for up to six months –Employees paid executive salaries (above a defined threshold)  The Act also exempts small business company employers with 100 or less employees from unfair dismissal laws  All employees are protected from termination of employment on unlawful discrimination grounds  A person claiming unfair dismissal must apply to the AIRC within 21 days of being dismissed  A person found to be unfairly dismissed can seek job reinstatement or compensation for lost wages - up to a limit  There are similar ‘unfair dismissal’ prohibitions in the state IR ­ legislation for most states  Employees not covered by the federal legislation are generally protected under the relevant state legislation Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

26. Legislation Affecting Employment - 1  Leave entitlements: –Employees covered by federal workplace agreements are entitled to: Annual leave Personal / carer’s leave Parental leave –Legislation in some states and territories give all employees entitlements for: Paid annual leave Long Service Leave - After continuous service for a specified period - usually 10 or 15 years –Full-time employees are entitled to four weeks paid annual leave  Workers compensation insurance: –Compulsory –Similar workers compensation legislation applies in each state and territory –Legislation establishes a statutory workers compensation scheme –Scheme is administered by the local occupational health and safety authority - see Table 13.2 –Employers must arrange compulsory workers compensation insurance cover for employees and limited kinds of contractors and voluntary workers –Workers compensation insurance provides cover for workers injured or made ill during employment –Heavy fines apply for non-compliant employers –The legislation also requires employers to provide rehabilitation for injured workers to enable them to return to the workforce Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

27. Legislation Affecting Employment - 2  Employers are required to keep the following records: –Workers compensation insurance documents – e.g. example, policies, proposals, claims –Wages records detailing employees’ work times and remuneration –An accident register book that records workplace injuries or illnesses  Workplace deaths and serious workplace injuries or illnesses: –Must be promptly reported to employers’ local occupational health and safety authority (see Table 13.2) –Report forms can be obtained from the occupational health and safety authority  Workers compensation records: –Generally required to be kept for at least seven years  Safety, Rehabilitation and Compensation Act 1988 (Cwlth): –Establishes a federal statutory workers compensation scheme for Commonwealth government employees. –Scheme is administered by Comcare - www.comcare.gov.auwww.comcare.gov.au –Other states have their own EEO legislation Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

28. Legislation Affecting Employment - 3 Workplace health and safety  Each state and territory has workplace health and safety legislation which administered by the local occupational health and safety authority  Workplace health and safety legislation requires employers to maintain healthy and safe workplaces as well as adopt safe work systems  Local safety authorities provide information about health and safety requirements for various industries  There are heavy fines for employers who breach health and safety legislation Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

29. Occupational Health and Safety Authorities Table 13.2 - OCCUPATIONAL HEALTH AND SAFETY AUTHORITIES Federal/state/territoryLocal authorityWebsite address Commonwealth New South Wales Victoria Queensland Western Australia South Australia Tasmania Australian Capital Territory Northern Territory Comcare WorkCover New South Wales Victorian WorkCover Authority WorkCover Queensland WorkCover Western Australia WorkCover Corporation of South Australia Workplace Standards Tasmania ACT WorkCover NT WorkSafe www.comcare.gov.au www.workcover.nsw.gov.au www.workcover.vic.gov.au www.workcover.qld.gov.au www.workcover.wa.gov.au www.workcover.com www.wst.tas.gov.au www.workcover.act.gov.au www.workcover.nt.gov.au Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

30. Superannuation Contributions  The Superannuation Guarantee Charge Act 1992 (Cwlth) requires: –Most employers to make minimum superannuation contributions for eligible employees to an approved superannuation fund  Contributions are at prescribed percentage rates: –The rate is 9% of ordinary gross earnings paid to employees  Superannuation contributions are in addition to the remuneration paid  Businesses that fail to pay these minimum contributions: –Must pay a higher penalty charge (the Superannuation Guarantee Charge) to the ATO Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

31. Income Tax Withholdings  Under federal income tax legislation: –Employers are required to withhold income tax at prescribed rates from employees’ wages –Any tax withheld must be regularly remitted to the ATO  Businesses paying contractors: –Who do not quote an Australian business number (ABN) must also withhold income tax from payments –Any tax withholdings from ­ contractors’ payments must be regularly remitted to the ATO  Income tax withholdings from payments to others is made under the PAYG withholding system Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

32. Workplace Discrimination - 1 Discrimination means treating people differently based on unlawful grounds Anti-discrimination legislation is based on the principle of equal employment opportunity (EEO)  In the workplace, discrimination can occur in: –Job applications –Promotions –Dismissals  There are specific federal Acts prohibiting discrimination in the workplace on the grounds of : –Race –Disability –Gender  Complaints under this legislation are made to: – The Human Rights & Equal Opportunity Commission - www.hreoc.gov.auwww.hreoc.gov.au  Commission determinations are enforced in the Federal Court  Federal Court orders made can include: –Injunctions –Damages –Job reinstatements Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia

33. Workplace Discrimination - 2  In New South Wales, the Anti-Discrimination Act 1977 (NSW) prohibits discrimination on grounds such as: –Race, –Colour –Marital status –Gender –Pregnancy –Political belief –Ethnic / religious background –Disability, –Age –Sexual preference  Complaints under the Act are lodged with the NSW Anti-Discrimination Board  Referrals go to the NSW Administrative Decisions Tribunal  Orders that can be made include damages and injunctions  Under the Anti-Discrimination Act 1991 (Qld): –Complaints are lodged with the Queensland Anti-Discrimination Commission –Referrals go to the Queensland Anti-Discrimination Tribunal  Tasmania, the ACT and the Northern Territory also have anti-discrimination legislation Legal and Taxation Aspects of your Small Business; I.Birt © 2007 Pearson Education Australia