Dirty Truth of Handshake Agreements - (complete series)

Can’t be bothered with the employer paperwork?

A ‘handshake agreement’ between you the employer, and employees is very convenient. A deal is done, a flat rate is agreed, and rigmarole is kept to a minimum. It is no fuss, no cost and you haven’t had to prepare and exchange formal employment contracts, fill out and approve timesheets, or administer and manage inconvenient filing systems.

Payroll isn’t an employment contract

You may even set up a quick and standard payment through the weekly transactions and call it ‘payroll’, pay some tax, and make superannuation contributions. The beauty of a good ‘old fashioned’ ‘handshake agreement’ is that it lets you get on and run your company, whilst the employee gets on and does the job.  

“But we had a deal” lamented the caller. ‘We had an agreement” he kept saying over and over. This business owner was clearly distraught, angry and scared. He was asking me if I could help him somehow reduce the back payment that was being claimed by a former, and very disgruntled, employee. The claim was for approximately $7,000.

Disgruntled mates have no loyalty

Some handshake agreements are even more convenient, with cash in hand, no tax, no superannuation, no time sheets and no paperwork whatsoever. In the very best examples, handshake agreements represent trust, loyalty, collaboration and true blue Aussie mateship; and, yes, we agree, that sounds like a wonderful and mature way to do business!

The ‘handshake agreement’ between this business owner and his employee was simple, and both were agreeable to it at the time. He would pay a flat hourly rate of $20.00 to the employee who would work at least 38 hours a week driving his commercial vehicles. For several years, he kept his word, and the employee kept hers. He was absolutely furious that this now former employee had reneged on their agreement, had ‘dobbed him in’ and had ‘betrayed him’.

The follow-on effect

Basically, while there maybe a few convenient advantages, there are far too many downsides of verbal arrangements and ‘handshake agreements’ between an employer and employee. Such informal agreements may assume an aberration of trust, integrity and fairness between the employer and the employees. They also may rely upon the vagaries of memory, nebulous details, and, two completely different perspectives and circumstances that inevitably change over time.

Although an unbudgeted $7,000 is a lot of money for a small business, the real issue was that at least another 20 employees (including his existing workforce) had the same verbal ‘handshake agreement’ with the owner. And of course, by the graciousness of the former employee, the existing employees had all been made aware of her claim and their potential entitlements.

Most of these 20 employees were due back payments of more than $20,000 each. Also, by this stage, the Fair Work Ombudsman had been notified, so potential fines and other penalties were a real possibility. Unfortunately, summing the back payments and entitlements due, the business owner was facing potential bankruptcy of his business.  

This is not an exceptional call nor story, it is typical of what we hear every week. Look for our next article in which we discuss the true risks of ‘handshake agreements’.

Dodgy Business Owners

The realities of disgruntled employees (and former employees), dodgy business owners, or the enforcement of Australian employment laws and regulations, render a ‘handshake agreement’ as a potentially dangerous liability. Unfortunately, just a ‘handshake agreement’ does not protect you, your business or your employees.

Getting caught out at Fair Work

Incredibly, despite all the recent media examples of high profile cases including Australian wide franchise organisations, entire industry sectors, and celebrity chefs, being heavily and publicly fined by the Fair Work system, many business owners are still prepared to take a risk, ignore the rules, and hope they don’t get caught out.

It is our experience, and as evidenced in the annual statistics from Fair Work, ‘handshake’, scam, and simply ‘half-baked’ employment agreements and arrangements, are still widespread throughout Australian industries. In fact, we are pleasantly surprised and extremely impressed when a small to medium sized business already has robust workplace compliance in place before we start working with them, as it is simply not the norm.  

Why SME’s have their fingers crossed?

That proper workplace compliance is the exception for most small to medium sized enterprises (SME’s), means that many businesses, business owners and employees are not adequately protected. However, when discussing these issues with business owners, we hear a range of attitudes and responses such as, the ever optimistic ‘she’ll be right’, the stressed hopeful ‘fingers crossed we don’t get caught’ to the more malevolent and defensive position of taking umbrage and display of arrogance. 

And, in cases when an employer is trying to do the right thing by implementing workplace compliance essentials such as Letters of Appointment and policies, often he or she is confronted with push back and irrational (possibly suspect) indignation from their employees.

Old fashioned puts lives at risk

Recently we assisted a responsible client to issue updated Letters of Appointment and a few pertinent policies (such as Drug and Alcohol) to each of his 20 tradies. These employees were consigned to work on major new commercial construction works, where Workplace Health and Safety is paramount, the owner must comply to extensive site and contract terms and conditions, and the jobs for the whole team were put at risk if there are any compliance issues or breaches.

So, the business owner was understandably upset when at least one of the employees resigned saying he preferred to work the old-fashioned way with just a ‘handshake agreement’.

Resistance at substantial risk

However, despite even the loudest opinions of business owners, managers or employees, if any employer does not have proper workplace compliance in place, they are at immediate and substantial risk of:  

• the surprise visits, audits or scrutiny of the regulators, such as the ATO, Fair Work Ombudsman, ASIC or Worksafe
• time consuming responses to employee claims, hearings and court appearances
• the cost of defending your position, regardless of having been otherwise fair in your dealings
• loss of sales and reputation
• negative media attention
• disruption to the company, and turnover of staff
• hefty fines, penalties and/or jail terms
• civil law suits
• non-budgeted lump sum back payments or settlements
• inability to properly address performance issues with employees

We believe that being haphazard or choosing to ignore Workplace Compliance is not worth the risk to you, your business or your employees. Look for our next article in which we discuss the good news and how workplace compliance is not too hard to achieve for any sized business.

Good News, Compliance is Not Too Hard

The good news is that in most cases, it’s not too hard nor expensive for any sized business to become compliant. In fact, for the majority, you don’t need to become an expert who delves into the vast myriad of legislation, set up bureaucratic piles of paper processes, engage a team of lawyers, nor hire someone exclusively to write everything from scratch.

A business owner rang me to share the news that the ATO had visited his restaurant unannounced at 7pm during dinner service to conduct a random audit. He jubilantly described how the ATO auditor was apparently “surprised and impressed” that not only did the restaurant have all their Tax and Superannuation payments up to date, it also had time keeping (finger print sign in/out), Letters of Appointment, Fair Work Statements and Award Rates in order. 

Lawful alternative to the handshake agreement

To protect you, the business and your employees, the better and lawful alternative to a ‘handshake agreement’ is to invest and implement at least the basics of essential workplace compliance.

He and I both knew that had the ATO arrived 9 months earlier, they would have seen a very different situation. Working with us, the business owner had invested a small amount to get up to date, which saved him potential fines, ongoing audits and scrutiny by the ATO and Fair Work. At the same time, the business owners’ moral reputation, which was at the time, being challenged by an adversary within his local cultural community was appropriately defended.  

Six fundamental aspects of compliance

Particularly, we suggest that all businesses, regardless the number of employees, must have the following six fundamental aspects current and compliant, being:

1.     Letters of appointment (plus the mandatory Fair Work Statement)

2.     Remuneration (Pay rates, tax and superannuation)

3.     Policies

4.     Procedures

5.     Practices

6.     Workplace compliance training

We recommend that your workplace compliance infrastructure make the most of the rights and opportunities that are available for employers, as well as addressing the requisite entitlements for employees as a minimum.

Easy solutions exist for all businesses

Though we are frequently told and do appreciate that each business ‘is unique and special’, it is possible to work with good quality standard templates rather than ‘re-inventing the wheel’. In fact, the most experienced People Management/HR advisors will tell you that workplace compliance structures in the largest corporations can be readily scaled to suit even the smallest businesses, regardless of industry, State, or number of employees.

Look out for our next article that discusses readily available online options for small to medium sized companies to implement Workplace Compliance.

SMEs Can Now Have Corporate Level Compliance

What was once only affordable to the largest corporations, purpose built online systems are now available to all sized budgets. Further, with the advantages of online apps. the best workplace compliance packages are now available as paperless systems. Although there are only a few in the market, the best systems are those that:

• are independent (not selling bank, superannuation, or insurance products to your employees);
• provide a full range of policy documents and management guides that may be used as is or customised to your business;
• a mobile friendly application that operates like an intranet style system with online dual file access and exchange between employees and managers alike;
• offer easy online form completion and policy “acceptance” tracking per employee; and
• direct online/phone access to experts who can compliant advice and guidance on the entire range of employment issues in the context of your business strategies.  

Meanwhile, we’ve compiled a few ‘tips and hints’ about each of the six key workplace compliance components mentioned above that you may find useful. These are:

The Letter of Appointment -- from elsewhere

Unlike many we have seen (and fix!), it is best that the Letter of Appointment document not just be cut and pasted together from various templates from the internet. The ‘cut and paste’ or ‘copied from elsewhere’ versions often feature key terms and conditions that are totally irrelevant, illegal or refer to attachments that don’t exist. 

Ideally a Letter of Appointment is written in easy to understand language, has all the requisite elements and customised to both the business and specific role. A Letter of Appointment must reflect the type of employment (full time, part time, casual, fixed term, etc), and addresses the following considerations; being,

• that there is a very clear legislated requirement that all employees are provided with a written description of their employment terms and conditions (aka Letter of Appointment);
• legislation prescribes that certain terms and conditions must be included in the written agreement;
• providing a well written and compliant Letter of Appointment is an important opportunity for employers to exercise rights that are available to them; and,
• as a written contract, the Letter of Appointment is a document that can be referred to and relied upon in disputes.

Pay rates

Essentially, we believe that it is worth the time and effort to ensure that rates paid to employees are correct. Unfortunately, calculating pay rates accurately is not always easy and most employers who are paying a flat rate or “above the Award” rates may not be doing so correctly. A few common errors we see are:

• Calculating rates of pay can be a challenge especially when industry allowances apply. And, the most common error that we see is that an assumption is made that an above the Award flat rate of pay includes the annual leave loading. Unless the Letter of Appointment specifically notates such, and the appropriate amount has been included in the flat rate of pay, employers may be in breach of the law. Likewise, with overtime, penalty rates and allowances.
• Also, if the employer does not specify in the Letter of Appointment that permissible flexibility has been applied to rates of pay, overtime, or hours of work, the flat rate or above the Award rate paid may not be sufficient, and again the arrangement is in breach of the law.
• Often over optimistic employers make commitments to new employees that promise incentives or bonuses that may not eventuate. These offers need to be carefully worded and communicated to the employee so the expectation of entitlement is always well managed.

Our suggestion is to never take pay rates for granted and always get them checked. Further, if you are offering employees other benefits, such as incentives, bonuses, car allowances and so on, ensure that the appropriate tax and superannuation is applied.

Robust workplace compliance requires more than pay rates and letters of appointment. Look out for our next article that explains why policies and practices underpin success and protect your your business and your employees against scrutiny. 

Your Business is Precisely Worth Protecting

Painless (and precise) policies

Although Company policies may have a reputation as being at best a tedious necessity, and at worst, out of control bureaucracy, well written and compliant policies do have many useful and worthwhile features for the employer, the company and the employees.

Policies in the form that is easy to read and invoke consistent standards across the whole organisation:

1. provide a plain English interpretation of the complex employment laws as they relate to your business;  
2. explain in detail the most important expectations that the business owner/s have of all employees;
3. articulates the business owner/s commitments to the employees as to how they themselves will make business decisions, carry out business operations, and handle any interactions and dealings with others internally or externally;
4. saves time and diminishes debate; minimises ambiguity and misinterpretation; and reduces wasteful re-iteration;
5. gives employees and managers confidence and assurance that they are working within acceptable parameters, therefore reducing uncertainty and anxiety because they don’t have to waste energy and time always second guessing what is considered to be right or not;
6. sets guidelines and may provide evidentiary support for significant decisions when managing employee issues or resolving disputes;
7.  is an opportunity to define workplace standards as to how you expect employees and managers to behave, interact and represent to each other and externally whilst representing your business; and,
8. most importantly, certain policies are required to meet compliance and governance obligations including (and not limited to) Workplace Health and Safety, Fair Work Act, Human Rights, Corporations Law, State legislation and Industry standards

Save costs, reduce waste and win larger business

Most businesses need documented procedures to meet certain industry standards or to win business with larger clients. However, when it comes to Workplace Compliance, there are several benefits in having the company procedures in writing and shared with employees and managers, including:

• Saves managers and employee time and productivity not having to repeat instructions or micro manage, even new employees;
• Diminishes single point sensitivity (for example, when someone holds critical information and can’t take leave without the place falling apart);
• Provides easy accessible “how to” guides supporting policies and standards across the business;
• Reduces risk of failure, error while detailing the important and proven steps for critical processes in the business; and,
• Increases consistency, fairness and lawful treatment and interactions between staff, managers and others.

Protecting or exposing the owner?

The value of policies, procedures and documents is either enhanced or diminished by the standard practices within the workplace. Practices not only set the tone of the workplace, and reflect on to the customer dealings, they may protect or expose the owner, the business and the employees from adverse implications.

Look out for our final article in this series in which we discuss the ultimate protection for you, your business, and your employees.

Scrutinise Your Standards

When defending against claims of wrong doing in the workplace, the typical practices and protocols of owners, managers and employees within may be scrutinised. It is the day to day behaviours, actions and decisions that define what is to be considered normal or standard practice within the business. Therefore, regardless of having all the right policies, procedures, and other compliance in place, it is the practices that tell if certain behaviours, actions or decisions are being condoned, role modelled and accepted by the managers and owners.  

This means that a claim can be more readily defended if the right practices and protocols, including those that meet compliance and governance standards, are the norm within the workplace.

Workplace Compliance Training

Ideally all managers and business owners have been educated as to what is workplace compliance, how it impacts the business, them and their employees and what they can do about it. Again, they don’t need to become employment law experts, however, they do need to know what and why certain compliance is mandatory.

Local business and industry associations provide masterclasses and workshops that are tailored to adult learning, the various levels of knowledge and time poor business owners and managers.

Ignorance is not an excuse

When it relates to being an employer of people, the regulators do not accept ignorance as an acceptable excuse. Employees don’t care if you have the capacity to pay large back pay sums, they just want their money. Also, it is very quick and easy for any employee to make a quick phone call or online enquiry to the Fair Work Ombudsman to make a complaint, especially now that they can do so anonymously.

100% of attendees at our training programs, including the most conscientious, did not know important elements of workplace compliance that expose their business daily.

Why comply?

Approximately 45,000 claims are dealt with in the Fair Work system per annum. We suggest you be the business owners who do the right thing. Don’t rely on ‘handshake agreements’, be pro-active, source the right HR/People management advice and support, and invest in a tidy up of your workplace compliance.