Three common mistakes employers make and how to avoid them

Regardless of the size of your business or the number of staff you employ, it is important that you manage workplace issues effectively. If you fail to manage your risks and liability properly, your business can suffer greatly. In this article we discuss 3 common mistakes which employers commonly make and how you can avoid […]

3 common mistakes employers make and how to avoid them

Regardless of the size of your business or the number of staff you employ, it is important that you manage workplace issues effectively. If you fail to manage your risks and liability properly, your business can suffer greatly.

In this article we discuss 3 common mistakes which employers commonly make and how you can avoid them.

Failing to use written or up to date Employment Contracts

One of the biggest mistakes employers make is either not utilising written employment contracts with their staff or using template documents which are either inconsistent with current law or which fail to address issues that are important to their business.Unfortunately, the consequences of failing to properly document an employment relationship or to ensure that the terms of such employment are lawful can be detrimental for employers with consequences ranging from disputes around terms of employment through to substantial fines, penalties and Court orders requiring payment of compensation or damages to affected staff.

So whilst it is not uncommon for employers to enter into verbal agreements surrounding the terms of employment with their staff, it is generally not advisable to do so. In the ordinary course, the interests of an employer will be better protected by ensuring that they have a well-considered and prepared employment contract in place with their staff.

By documenting employment terms in writing you can clearly state the rights, obligations and understandings of the parties in relation to a range of basal issues, for example, the position and duties of the employee, hours of work, remuneration, term and how the agreement can be terminated.

Well-drafted employment contracts can also address a range of issues which may be important to your business and protecting its interests, including how confidential information is dealt with, intellectual property and restraints of trade.

By addressing these issues in writing, there is less room for confusion between the parties as to their rights and obligations. This is generally a positive thing when staff relationships are operating well, but certainly advantageous in the event a dispute arises as to the terms of employment, as it is generally easier to demonstrate the basis for a position being taken if there is a term in an employment agreement to support it.

It goes without saying that at the end of the day the usefulness of an employment contract is largely going to be related to the extent that it has been prepared in consultation with and in consideration of relevant laws.

Accordingly, one of the most important things that you can do as an employer is to ensure that a template employment agreement that you use is up to date and otherwise fit for the purpose it is being used. Given that relevant workplace laws and entitlements change regularly, you should be reviewing any template employment agreements frequently, and as part of this process, consulting with a solicitor to ensure that the terms of any template are lawful.

Getting employment status wrong

Another common mistake to avoid is classifying a worker as a contractor when in fact they are an employee at law. If you get this wrong, the consequences can be dire for your business.

We understand that there can be a tendency for employers to be attracted to consider contracting arrangements as opposed to employment of staff for a range of reasons. These can include a belief that they are afforded greater flexibility in their dealings with such workers, the prospect of reduced exposure to adverse workplace claims and the potential to avoiding paying certain entitlements.

There are certainly times where a contractor arrangement will be lawful and appropriate to utilise.

In practice though, we often see the downside of contracting arrangements that have gone bad, in particular, when a worker has been employed as a contractor when they were really an employee.

Unfortunately, the consequences of getting this worker status wrong can be terrible for an employer. Practically it can result in a raft of adverse outcomes such as having to pay substantial penalties and being ordered to back pay entitlements and/ or compensation or damages to affected workers.

These issues are compounded by the fact that even when you have the best of intentions for dealing with your workers, determining worker status correctly is not always an easy thing to do.

The reason for this is that the circumstances of each working relationship will generally determine whether a worker is properly a contractor or employee at law. Because of this, it is very difficult to apply blanket approaches to determining worker status, nor is it possible for you to simply rely upon the title or description of the role being performed by the worker as a defence.

The Courts will look beyond the title given by the parties to the relationship and examine the substance and entirety of the working arrangement. In doing so, they will have regard to a range of factors such as control over work and how work is performed along with a number of other issues to determine the true nature of the working relationship.

It is generally advisable that you receive legal advice around these issues to ensure that a working relationship has been properly classified and treated. By doing so, you lessen the risk of falling foul of this common mistake.

Not paying employees properly

A fundamental error often made by employers is failing to pay their staff properly. This is something that you should avoid at all costs.

In Australia, employers are required to pay their workers at least in accordance with minimum standards prescribed by the National Employment Standards or an applicable industrial instrument (For example a modern award).

In the case of modern awards, they set out minimum wages and conditions on an industry specific basis having regard to the nature of the work performed by particular categories of employees.

Employers need to ensure that their award-covered staff are being paid in accordance with the terms of the relevant award and otherwise that their payment practices are complaint.

A failure to do so can mean that you can be exposed to substantial financial penalties, fines and orders for compensation and back pay.

An issue that we commonly find is that many employers are often unaware of which modern award applies to their staff or otherwise how to navigate modern awards to determine precisely what entitlements are payable.

It can often be difficult for employers to accurately determine these issues by themselves, and for this reason, it may be prudent for you to seek legal advice to ensure that the modern award which is being utilised is correct and that your payment practices are legally compliant.

Action plan – Where to from here?

As an employer there are a myriad of issues for you to consider when dealing with your staff.

On a practical level, specific things that you should pay attention to include:

  1. If you don’t have employment agreements in place: Give serious consideration to doing so promptly
  2. When using existing template agreements: Review those to ensure they are up to date and fit for purpose
  3. If you engage contractors or are considering doing so: Assess the nature of the working relationship to determine whether there is a risk that it could be held to be an employee – employer relationship
  4. In terms of meeting minimum conditions: Ensure that you are paying your workers properly, and otherwise that you are always at the very least complying with minimum employment standards
  5. More broadly: Take steps to assess your current practices, and otherwise audit your existing processes and documentation to determine whether any issues need to be addressed and otherwise with a view to ensuring that your systems are effective.

The reality is that even when you have the best of intentions in relation to these issues but fall short, you are likely still exposing yourself to substantial risks.

For this reason, it will often be prudent for you to engage a lawyer to provide you with advice in these areas to ensure that you are legally compliant.

The peace of mind that can come from knowing that your business practices are effective and lawful is often priceless, particularly for small business operators who can ill afford disruption or unexpected financial expenses to be thrust upon them at short notice.

Forge Legal is well placed to assist you in relation to all of your employment law and workplace relations needs. Please contact us to speak with one of our friendly solicitors if you want to discuss any aspect of this article further. We look forward to hearing from you.

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