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The 11 Reasons Why Hair & Beauty Salons are Failing Fair Work Audits and Being Fined

Compliance with the Fair Work Act is not a familiar topic for many business owners. And I see so many hair and beauty salons failing Fair Work audits and being issued with fines into the 10's of $1000's.

And I completely understand why it's so difficult – the legislation isn't exactly easy to interpret, you have a lack of time to dedicate to compliance issues, and you don't know where to start.

A lot of Salon owners we have been assisting are highly ethical people and honestly want to get it right. Not just because they want to avoid the financial penalties that could potentially send them bankrupt, but also because they want to protect their brand from bad publicity, be known as an employer of choice, and escape the anxiety of knowing they may be breaking the law.

That's why I wanted to share the 11 reasons why Salons are failing Fair Work Audits with you so you can be prepared when the Inspectors arrive on premises.

1. Underpaying staff
With Australia's complex employment laws, modern awards and agreements, underpayment of wages is alarmingly widespread. Apprentices and trainees are particularly vulnerable to being underpaid at work. But make no mistake, underpaying employees (even inadvertently) attracts big fines and back pay claims, not to mention the damage to your relationship with employees and your brand.

If you don't know which instrument your employees are employed under then how do you know what you are legally allowed to pay them and what conditions and entitlements apply to their employment. If this is you, you're not alone - a lot of businesses in the SME sector are unsure and simply pick a wage figure out of thin air or simply pay what one of their competitors are paying (which may in fact be incorrect).

2. Leave
Employees can take leave for many reasons – annual leave, sick leave, carers leave, compassionate/bereavement leave, long service leave, public holidays entitlements, community service leave, and the list goes on. Minimum leave entitlements for employees come from the National Employment Standards (NES). But if your employees are covered by an award, registered agreement or contract of employment, there may be other leave entitlements. Businesses need to ensure they systems in place for employees to apply for the varying types of leave and also ensure they are keeping records relating to the leave employees have taken.

3. Record Keeping
The obligations on businesses with regard to record keeping and who can access employee records, is extensive and rarely adhered to across the sector, hence it is one of the most frequent breaches the Fair Work Ombudsman issues fines for. Adopting best practice record-keeping makes it easier to keep track of employee details. It can also identify any payroll mistakes and keep a business running efficiently.

Did you realise that employers must keep time and wages records for 7 years, they need to be readily accessible to a Fair Work Inspector, legible and in English. The information that needs to be kept for each employee includes the employee's commencement date, whether the employee is full-time, part time, or casual, permanent or temporary, pay rates, gross and net amounts paid, any deductions, details of any incentive-based payments, bonuses, loadings, penalty rates, or other monetary allowances.

There are also a number of other records that need to be kept which we'll just categorise here otherwise this article will turn in to a book…
  • Hours of work
  • Leave
  • Superannuation contributions
  • Individual flexibility agreements
  • Any guarantees of annual earnings
  • Details relating to the ending of employment
  • Records relating to employees who have transferred to a new owner when a business has been sold.
4. National Employment Standards (NES)
The NES are 10 minimum employment entitlements that must be provided to all employees in Australia (except casual employees who only get NES entitlements relating to four (4) of the ten (10)). The 10 minimum entitlements of the NES are:
  • Maximum weekly hours
  • Requests for flexible working arrangements
  • Parental leave and related entitlements
  • Annual leave
  • Personal carers leave and compassionate leave
  • Community service leave
  • Long service leave
  • Public holidays
  • Notice of termination and redundancy pay
  • Issuing of the Fair Work Statement
Some employers make the mistake of thinking that the entitlements in their enterprise agreement or employment contracts can override the NES entitlements, however this is definitely not correct. An award, employment contract, enterprise agreement or other registered agreement, cannot provide for conditions that are less than those listed in the NES. In addition to these 10 NES, there may be additional entitlements your employees have access to if they are employed under an award or registered agreement, or have an employment contract in place – these might relate to things like breaks, or uniform, vehicle and travel entitlements. Not being clear on whether you are providing for the specific entitlements they are lawfully obliged to receive, is a sure-fire way to be slapped with penalties by the Fair Work Ombudsman.

5. Award, Agreements and Legislated Provisions
It can be overwhelming trying to navigate this area of employment but here's an overview - Minimum pay and conditions at work can come from awards, registered agreements or legislation. You need to understand which applies to the employees you employ. If your business has a registered agreement in place and it covers the work your employees perform, then the minimum pay and conditions in that agreement will apply. However if there is no registered agreement and an award covers the work your employees perform, then you will find the minimum pay and conditions in that given award. If there is no award or agreement that applies to the work your employees perform, the minimum pay and conditions will come from the Fair Work Act.

6. Employment contracts
You can find yourself in all sorts of trouble if you don't record an employee's terms and conditions when you hire them. Employment contracts written in plain English help you minimise costly and time consuming disputes by providing certainty about the legal rights and obligations of both you and your staff. If you have employment contracts in place, the pay and conditions in them must be in line with the instrument the employee is covered by. See point 5.
7. Independent contractors
For employers, hiring contractors is not just about the lower overheads, it's the ability to adapt quickly to changing demands. However, while contractors run their own business and provide services to your business, you can't classify a worker as a contractor simply because they have an
ABN and they offer specialist skills. Furthermore, having a worker sign an agreement that states they are not an employee does not necessarily make them so. Sham contracting is definitely on the Fair Work Ombudsman's radar so make sure you're crystal clear on whether your workers are correctly classified as an employee or contractor.

8. Workplace safety
It doesn't matter what your business does, or how low risk it is, as a business owner you have legal responsibilities to provide a safe place of work for your employees, contractors, volunteers, visitors, customers or the public. Though it may cost to implement safe practices and install safety equipment, the effect of not taking action can be costlier still. Remember, not being able to afford to implement the requirements under the WHS Act is no legal defense, neither is saying you didn't know the Act required it of you.

9. Workplace policies
It's one thing to create sound workplace policies, and quite another to actually enforce them. But your policies are only effective if they are uniformly enforced and properly communicated to your employees. Plus, you need to regularly audit your workplace policies to ensure they are up to date with relevant laws and other internal policies and procedures.

10. Performance management

While you may have a valid reason to dismiss an underperforming member of your staff, if you don't follow due process, you'll end facing and potentially losing an unfair dismissal claim. Procedural fairness is absolutely critical to how the Fair Work Commission decides unfair dismissal cases. If you fail to show you have applied procedural fairness before you dismiss an employee, it will usually result in a finding that the dismissal was unfair, financial penalties, damage to your brand, and possibly a ruling that you must reinstate the employee.

11. HR automation

If you're still relying on an individual in your business to process your payroll, manage HR tasks, and ensure compliance, it's only a matter of time until you come unstuck. HR automation can help you save serious time and money by streamlining these processes, thereby making your business much more efficient.But the best thing about today's HR systems is that they can also completely manage your compliance with the Fair Work Act and WHS Act. So when the Fair Work inspectors come knocking on your door, you'll have all the information they need to see at your fingertips. Well worth it in our view.

Remember, HR compliance isn't just for the big end of town. And while you may have pushed it to the bottom on your to-do list, as a SME business owner, it's time to step up and fully understand what you need to do to get on top of your HR tasks and processes before things go awry. Remember: Not knowing your obligations as an employer is no defense.