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Dirty Truth of Handshake Agreements (Part 2 )

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.

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Why SME’s have their fingers crossed?

While 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.

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Dirty Truth of Handshake Agreements (Part 1)

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.

Compliance Works

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 Part 2 Dodgy Business Owners in which we discuss the true risks of ‘handshake agreements’.

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I Hate Managing People!

Over several decades of being in HR I have never had anyone say they love managing staff.

In fact, many supervisors and managers have confessed they don’t even like talking to people. They find it uncomfortable and put off having to do so as long as possible.  My observations is that when it comes to conversations between a boss and an employee it seems that football, the weather or the latest cat videos trending on social media are the most comfortable and common.

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Conversations between Managers and employees really fall into three broad categories – too much, too little or just right.  Getting it just right can seem like a challenge.  Especially when we add the daunting layer of workplace compliance, and potential laws that might impact what we can and cannot say in the workplace.

In the corporate world, typically, managers are taught that they should always be very clear and articulate expectations for employees. These expectations are then written into job descriptions and ideally aligned with business objectives under the headings of Key Result Areas.  The managers are then required to give employees ongoing feedback as they are to monitor and measure progress for success or otherwise, then manage the employee accordingly.

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However, most managers find this whole performance management process tedious, time consuming and difficult.  But, employees need and want this two-way communication so they will feel valued and supported in doing their job.

So, at Business Embassy we have solved this dilemma. We will manage your people for you. We take this necessary but time consuming task off your managers.

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The Right to Hire and Fire

Right to hire and fire Business Embassy blog

You have the right to hire and fire.

Here in Australia, you must always ensure that you treat employees with respect. If you need to terminate someone’s employment it must be done properly and lawfully.

We advise and guide business owners through the process of people management. Should they need to terminate an employee, we work with the owners to ensure that the termination is lawful and respectful.

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However, I can’t count how many times, a business owner or manager has said to me “I can’t keep that person in my business, but I don’t want to do [the actual firing].”   Having to terminate an employee is emotionally challenging, whether it be the very sad situation of having to make a long-term, loyal employee redundant; a new hire on probation that’s just not working out; or when you have an extreme case of an employee who has been involved in a clear case of gross misconduct.

I’ve seen very calm experienced senior executives stress so much that they can’t speak in their 100th redundancy discussion; and the sternest of business owners so anxious that they don’t go through with the termination even though the employee had punched a client in the face; and a gentle soul of a manager become manic and yelling (at me, his venting buddy), before he had to face his employee who had been given 50 chances to improve performance.

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It’s not a good experience to have terminate an employee. I’ve been told I am being mean because I am not paying the payroll manager his fraudulently calculated entitlements; I’ve been protected by five body guards when the police had warned me of the dangerous nature of the employee I was terminating; and I have held back the tears when I knew the person was from then on, unemployable.

Business Embassy compassionately and professionally guides owners and managers through the traumatic process of employee terminations.   Our termination procedures and documents have been applied many thousands of times over, with the right outcomes. We treat all employees with respect and dignity.

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3 Problems Managing Difficult Employees

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Many employers find they are managing difficult employees instead of managing their business. Being an employer essentially means that you have the commitment to pay employees to provide you with their time, skills and capability to a certain level of proficiency that will add fundamental value to your company.

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You already know that employing people is an expensive business cost by its very nature. As a manager of people, you know that it is your role to keep the business running smoothly. You have to find the most cost effective manner whilst maximising productivity. Any distraction, complication or reduction of achieving the maximum benefit detrimentally impacts your business and its bottom line.

Given that your role as a business leader is to achieve maximum value for the company shareholders in all aspects of the business operations, obtaining robust and appropriate advice and support for those ‘expensive’ employees and all their related matters is, at a minimum, tantamount to fulfilling your basic governance and obligations to deliver business success.

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Like their executive and business peers, HR experts identify how to reduce costs, increase profit and productivity. Neglecting people management issues or addressing them with minimal expertise might at best suppress the issues and will rarely eradicate the problem.

By not affording an HR expert for your business, minor problems and poor people management practices become the normal way of operating, or as is known in the industry define the ‘workplace culture.’

Workplace culture is considered to be the repeating habits, norms, language and actions of those within the company. Business are at risk of creating a workplace culture that repeats poor practices and which inflicts unnecessary frequent pain and costs to the business both in the immediate and longer term.

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Experienced managers know that employee issues are rarely straightforward and usually involve unique facts and context. To provide the best advice in seeking a solution, investigative questions need to be asked.

However, employers often don’t know the actual questions that need to be asked. In many cases, even a very experienced manager may never have lived through a particular situation or dealt with a similar issue.

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The Business Embassy team appreciates that employee issues tend to be unique rather than generic, and each needs to be treated in its own right.

Knowing the right questions to ask comes from a combination of both specialist knowledge and experience. We provide you with specific advice and can act as your short-term or regular human resources manager when you don’t have someone who can enact the advice in a timely fashion. Our services include training and mentoring your managers in both the legal and leadership skills to handle difficult employees.

Business Embassy’s commitment to ensuring your employees add value to your company is our Employer Value Proposition. We work with you and for you to effectively maximise the true potential of your employees. Call us to discuss the problems you are having with a difficult employee. We offer a free, 30-minute phone consultation and a quote for any follow on actions you need. All discussions are confidential.

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HR Problems Google Can’t Solve

At a social gathering, I asked my two accountant friends Larry and Graham, why they don’t use a Human Resource expert in their respective businesses. To which Larry the CFO immediately quipped, “… because I have Google.”

Larry then regaled yet another anecdote regarding current HR problems.  Suffice to say the incident involved a recently hired manager uploading his workplace ‘selfies’ onto the company computer as his screen saver. Unfortunately, the employee was wearing nothing but the company logo t-shirt in the photos!

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Whilst this little story made amusing dinner party conversation, it became clear that Larry was spending an inordinate amount of his time dealing with the consequences of inadequately equipped HR practices.

In fact, Larry is heavily involved in hiring, firing and addressing employee related issues on a regular basis in addition to his busy CFO responsibilities. He also works long hours, travels extensively and is a committed, dedicated and an invaluable contributor to the success of the company. Surfing the internet for employer advice is a serious distraction from his real job, as well as impinging upon his family life.

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More complete than Googling workplace compliance. We are Your Go To Experts to gain the knowledge of the full-range of Australian employer rights and obligations. We have HR experts located throughout Australia to deliver training on a date and at a location that works for you.

Call us or fill out this form to get a must-know, half-day training course on workplace compliance.

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Graham, my other CPA friend at the dinner party, gave a contrasting answer to my question. “Most of my clients could really do with HR expert advice. They are frequently troubled with how to deal with employee related situations but don’t know how. So I refer them to lawyers”

Hearing both Larry and Graham’s approaches, as trusted accountants, support their clients confirmed what I had already been told by others. It’s clear that my experience with larger corporations is not necessarily reflected by what smaller companies do in practice.

Whilst larger corporations typically recognise the necessity and criticality of engaging appropriate expertise to look after the company’s often most valuable investment, being its employees, smaller businesses generally do not.

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Most start-up businesses readily source an accountant and bookkeeper to look after financial matters either prior to or within the first few months of achieving an ABN.

However, it is quite unusual for a company to have engaged an expert HR advisor on retainer or as staff until employee numbers have grown beyond 50 or 100 people.  This perhaps suggests that there are many smaller businesses with salary commitments of, say, $2m annually that are not efficiently or adequately managing their most expensive, complex and critical investment!

Further, as all successful leaders know, and as a colleague prompted me to emphasise here, that “a business’ most valuable commodity is not its bricks and mortar or product but its people. If you don’t attract and retain the best people your business will suffer greatly”.

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[block_title inner_style_title=”only_text” title=”Ask Us About Workplace Compliance “]Faster than Googling it![/block_title]

We will train your managers in how to handle employee issues. Know what your rights are as an employer. Reduce the risk of breaking a law.