While there are many, according to research conducted by CCH Australia, the top reason for small business failure is cited by 61% of respondents as being due to an inability to manage costs and anticipate rising costs.

Recently the Shop Assistants Union in South Australia reached an agreement to abolish or reduce weekend penalty rates in return for general pay increases and some flexibility.

Employer groups are applauding the agreement and saying that business cannot afford to pay crippling penalty rates of up to 275% set by the Fair Work Commission. Employers say they are not arguing against penalty rates, but rather their excessive levels.

Employees on minimum wages are saying that if they lose penalty rates, they will lose a vital component of their income and this could lead to poverty.

The ACTU that represents all unions say employees who work nights and weekends deserve to be compensated.

With so many interested stakeholders, this issue will require careful consideration. Questions such as can a business really afford to pay casual employees $50 per hour to serve coffee need to be addressed? Are employees and unions expectations fair & reasonable? Can increased costs be passed on, or will customers be lost?

What happens if an appropriate balance cannot be achieved?

Penalty Rates – A Brief History

Penalty rates for Sunday work were introduced in 1919 as compensation for “unsociable hours” of work.

In 1950, penalty rates were said to be a deterrent to employers want to work employees on weekends. The rates were set to compensate for the disturbance to family and social life as well as religious observance.

But are the “norms” of life almost a century ago applicable to the reality of a modern, global economy?

Many people prefer to work on weekends or at least, have the flexibility to choose as it suits their lives and families to do so.

On the other hand, should employers who campaigned and won extended trading hours in exchange for the introduction of penalty rates, now be able to drop those rates?

Labour Costs & Business Viability

The purpose of business may be to produce something, to serve the community and to provide employment, however the ultimate motivation is to make profit for its owners. If a business fails in this endeavour, it must change or inevitably close.

Whilst ever a business remains under the control of the directors, they have options and alternatives to effect change. In this regard, they may pursue increases in revenues, or the reduction of expenses – but at present, there is little they can do to control the costs associated with the imposition of crippling penalty rates.

Where a cost structure is imposed and revenues limited, business may choose to either:

• trade as is and incur ongoing losses as long as they can be sustained
• remain closed at times when trading is not viable
• increase the price of goods or services if customers will bear it
• reduce the level or quality of the goods or service

Each of these options has the potential to harm the stakeholders

Liquidation & Bankruptcy

Not one of the stakeholders in this debate would advocate the total removal of penalty rates to exploit vulnerable workers, but without some modernisation and flexibility, there is an argument that jobs and companies will be lost.

Companies burdened with unrealistic wage costs may either remain closed when conditions make trading unviable or, if they choose to remain open and trade unprofitably, they could eventually fail and enter company liquidation.

By the same token, if individuals are not allowed to sell their time below a certain rate, shifts will be lost and overall earnings reduced. This loss of income could then lead to reduced economic activity, a reduction in spending, which in turn would see a further deterioration in employment. It could lead all to a downward spiral of more liquidation and bankruptcy administrations.

What’s your view?

The Reserve Bank is meeting today to discuss the prospect of further interest rate cuts to historic low levels. There is a major concern that further rate cuts will do little to stimulate the economy. Is the issue of penalty rates just one of a host of issues that need to be addressed? Do we have a structural problem? Is it a confidence issue? What exactly is the problem?

If at any time you are facing financial difficulties, call The Insolvency Experts for help and all your options.

Source:  Penalty Rates Hit Hospitality – news.com CCH Research Penalty Rates rethink – smh.com.au

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Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.