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Dirty Truth of Handshake Agreements (Part 3)

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. 

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.

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Lawful alternative to the handshake agreement

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

So, 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.

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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.

Go to our next article (Part 4 of 4) that discusses readily available online options for small to medium sized companies to implement Workplace Compliance.

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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’.

To be a more respected, appreciated and lawful employer,

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