Story by David Hobbs, Icebank Hospitality and Cafe Bookkeepers
Cafe Bookkeepers provides bookkeeping, tax accounting & managed payroll to hospitality businesses throughout Australia. cafebookkeepers.com.au
Underpayments are currently a scorching hot topic, and with the recent revelations about Woolworths and Bunnings, the debate could spill over from hospitality into all industries.
The government might be forced to take action and criminalising ‘wage theft’ is an idea already being mooted. It has become clear that for some large businesses, systemic underpayments are a business plan, expecting that forgiveness would be easier to come by than permission.
Back in the hospitality industry, unfortunately, under-payments have been normalised in many workplaces, and in our experience, can take a variety of shapes and forms.
Flat rates
“Awards and penalty rates are too complicated, so how about we just do $xx per hour?” Sure, that’s easier for everyone, right?
There are some circumstances where weekly or annual salaries are beneficial to employee and employer for regular and ongoing work. However, the award insists that wages are at least 25% above the equivalent hourly rates to compensate for the lack of opportunity for penalty and overtime rates.
Salaries with extras
Full-time salaries are where most of the fine dining restaurants have been caught out. Providing a contract and pay for 38 hours (with a provision for reasonable overtime) but rostering and expecting staff to work 50-60 hours per week or sometimes even more.
Scheduled breaks and rest periods are often ignored or at best, not recorded.
Mis-classifications
The classification system is probably the area where confusion reigns the most. The business must pay staff at the classification level that represents the duties they perform and their qualifications or experience.
Classification levels can be hard to assess, and for some reason, the breakdowns are buried in the depths of the award documentation.
If a FairWork investigation found that you had misclassified an employee, they could order a back payment for the difference on every hour they ever worked. Another huge potential liability that you wouldn’t want to have hanging over you.
On-the-books, off-the-books
Perhaps this is the most common payroll issue in small businesses up and down the country. The thinking being, that if a business pays one or two casual staff members ‘under-the-table’ or ‘off-the-books’, they might be doing them a favour and also giving the business a helping hand.
A staff member might already have a primary job and not want to work extra hours without the tax-free threshold, or perhaps they are in Australia on a student visa and have already worked their maximum of 20 hours per week during term time.
At first, it might seem like a double win for the business. If a business hides a little of the cash sales, it is not recorded, so they don’t pay the GST on revenue. If this were $1000 per week, that would be $52,000 a year: which might also represent a chunk of annual profit on which they wouldn’t pay business income tax.
Secondly, paying the staff member via a cash envelope means no 9.5% superannuation contribution and perhaps the staff member would agree to a lower hourly rate as they in-turn will pay no PAYG tax on it?
When you then factor-in that some companies could also then remove the wage from workers comp insurance or payroll tax calculations, it becomes obvious why this has become endemic.
Winds of change
Times are changing and mostly due to technology, that underpayments above will become harder, if not impossible, to get away with.
The ATO are increasingly using sophisticated data matching and analytics to find irregularities and launch investigations.
They use their vast data sets to create KPI’s for each industry and individual types of businesses. These are known as the ATO Business Performance Benchmarks. Hiding cash sales or wages will affect these ratios, increasing the risk of getting flagged or audited.
Cash sales have been falling steadily for the last decade with the advent of PayWave and now digital wallets on smartphones.
Single Touch Payroll (STP)
The new, digital reporting of all payroll activity has been compulsory for businesses with more than four employees since July 1st 2019.
To be clear what this means: The ATO now receives details of all salaries, wages (both hours & rates), PAYG and Superannuation totals, in close to real-time, in a data format that they designed.
If you don’t know about this, you should ask your bookkeeper or whoever processes your payroll. If you haven’t yet set up STP, you are going to start receiving additional fines from the ATO in the coming months.
Staff are understanding their entitlements better than ever before
And this is a good thing. Motivated and fairly compensated employees are exactly the people who are going to keep your customers coming back. The award system can be complicated but FairWork continues to make improvements to their documentation with tools and calculators on their website to help workers understand the system.
In addition, facebook groups and new unions such as HospoVoice in Victoria have popped up to organise and make (a lot of) noise in the direction of businesses accused of underpaying staff.
Think you can’t afford to pay your staff the award wage?
Can you afford not to?
Yes, running a profitable hospitality business is harder than ever. You need to be growing revenue, keeping regular customers happy, marketing cleverly and watching the dollars and cents on every expense. It’s hard, but cutting corners on staff wages is not the low-hanging-fruit.