SENATOR NICK XENOPHON'S
DISSENTING REPORT
1.1
Small businesses in Australia are an integral part of the very fabric of
our society and economy. They are the businesses which many Australians are
first employed by and they are the first to lend their support to local
communities, particularly in regional communities. According to the Council of
Small Business Organisations of Australia, as at 30 June 2011, 93 per cent of
retail businesses were small and 84 per cent of businesses in the
accommodation, café and restaurant industries were small.[1]
1.2
Unfortunately, small businesses face a multitude of challenges today.
Patchy consumer sentiment and spending, the high Australian dollar, increasing
input costs (particularly electricity costs) and increasing labour costs have
all contributed to a difficult operating environment. A benchmarking survey
conducted by Restaurant and Catering Australia revealed that 18 per cent of
small restaurant and catering businesses were closed on weekends - which
equates to the loss of approximately 3000 jobs – due to the financial burden of
paying penalty rates. Restaurant and Catering Australia also revealed:
We expect that we have had further reductions in staff
numbers, given that 70.9 per cent of the respondents to our survey... reported
that they would be further reducing staff numbers as wage costs increased.
One-third of the businesses also reported that they intended to close their
businesses on weekends or public holidays as a result of those increases in
costs.[2]
1.3 The importance of small businesses cannot be
underestimated, nor can their vulnerability in a soft economy. The Fair Work
Amendment (Small Business – Penalty Rates Exemption) Bill 2012 (‘the bill’)
aims to give small businesses employing less than 20 people in the retail and
hospitality sector an exemption from paying penalty rates unless the employee
has worked for more than 10 hours in a 24 hour period or 38 hours in the week.
1.4 There was some debate amongst submitters as to the
accuracy of data presented regarding labour market conditions. The Australian
Council of Trade Unions agreed that meaningful data collection is required:
Senator XENOPHON: You
referred to some industry specific ABS data and said you do not support the
assertions of Restaurant and Catering from their surveys. Do you think there is
some useful work to be done to establish a consensus as to what job losses
there have been and how many businesses have closed down on Sundays in that
small business, restaurant and catering, and retailing sector?...
Mr Lyons: We would never
oppose the collection of meaningful data. It is always better from an
industrial participant's view and a public policy process that we have all got
the facts.[3]
Recommendation
1.5 That the Federal Government establish a mechanism to collect and
report on labour market conditions in a timely manner.
1.6
The bill seeks to recognise that Australia has moved away from the
traditional Monday to Friday work week and it is not uncommon for a 38 hour
work week to span weekends. Therefore the rationale for paying penalty rates on
weekends which form part of an ordinary 38 hour work week is less justifiable,
particularly in the small business context. The unique pressures on small
businesses are reflected in the provisions of this bill. It is not intended
that the bill be extended in any circumstances to businesses with more than 20 full
time equivalent employees.
1.7
As was recently stated in the Sydney Morning Herald:
Economic growth without a significant population increase
requires a flexible workforce to be paid fair and affordable wages. When laws
prevent this and impose out-dated standards to the detriment of job creation
and higher incomes for all, it is time for modernisation.[4]
1.8
The Productivity Commission has provided valuable guidance in terms of
how to set penalty rates, explaining that:
In principle, penalty rates in awards should not be set in
excess of the minimum necessary to avoid unfair or unduly harsh treatment of
employees, and an efficient level of penalty rates would be one which is just
sufficient to induce people with appropriate skills to voluntarily work the
relevant hours. Some workers may be very comfortable with (or even prefer)
weekend and evening work and, for these people, the additional pay incentive
may not need to be as large as exists under the current penalty rate structure.
If work at existing penalty rates in keenly sought, this may also be suggestive
of those rates being higher than is necessary to compensate workers for working
at times that are inconvenient.[5]
1.9
It is clear from the submissions received and exchanges at the
committee's public hearing that the concept of penalty rates evokes a strong
reaction from the community. I welcomed the debate that took place because the
reality is small businesses are struggling and something must be done to ensure
these businesses remain in operation and continue to provide jobs.
1.10
However, I was disappointed that of the 30-odd pages in the committee’s
majority report only four pages were dedicated to reflecting the arguments in
favour of the bill.
1.11
Furthermore calls for an additional hearing were not heeded by the
committee. Despite this I believe some valuable contributions have been made
during the course of the inquiry.
The concept of a weekend
1.12
This bill was introduced in order to acknowledge the changing nature of
business trading hours, and the special needs of small businesses and their
employees. It was argued by some that this bill sought to eliminate the concept
of a weekend. Unions NSW submitted:
Whilst there have been significant increases in business
hours in the last 50 years, Unions NSW does not believe that this makes the
concept of the weekend or public holiday redundant.[6]
1.13
This position was countered by Restaurant and Catering Australia:
I point out that a number of the submissions made by the
trade union movement make some points about this bill abolishing the weekend as
we know it. That is far from the truth. This is nothing about abolishing the
weekend. What it is really about is ensuring that small businesses can manage
their business and have profitable operations. The only way to do that is to
make sure that the business model that they have is something that actually
works.[7]
1.14
Restaurant and Catering Australia continued:
When you have, in some cases, low-skilled employees on hourly
rates of over $45 an hour you can understand why these small business
entrepreneurs are concerned.[8]
1.15
As the Explanatory Memorandum states, the Fair Work Act and modern
awards do not (generally) recognise this shift towards a seven day week:
The intention of this bill is to allow small businesses in
the hospitality and retail sector... to remain true to the original intention of
penalty rates while avoiding the high cost burden during specific days of the
week.[9]
1.16
In fact, Mr John Hart, CEO, Restaurant and Catering Australia, told the
committee that since recent minimum wage increases some employers are now 'paying
hourly wage rates during the week they used to pay employees inclusive of all
penalty rates under the pre-modern award system on Sundays'.[10]
He provided an example of a casual waiter in Brisbane who in 2008 earned $17.87
an hour on Sundays and in 2012 earns $25.93 an hour on Sundays. The same employee
will now earn $22.00 an hour Monday to Friday for shifts between 10am and
midnight.
Recompense for working 'unsociable hours'
1.17
The Shop Distributive and Allied Employees' Association told the
committee about an analysis of Australian and international literature
regarding the effect of working unsociable hours:
For employees, the adverse effects include physical and
mental health problems, psychological distress, job satisfaction, poor
work-life balance and work-family strain. For families, there is a record of
higher marital discord and marital dissolution, more parenting stress, poorer
education and social outcomes for children, higher adolescent depression and
anxiety, poorer cognitive outcome and poorer mental health...[11]
1.18
Penalty rates were implemented in order to compensate the employee from
working unsocial hours and for the associated adverse effects listed above.
However, even more significant adverse effects could be attributable to a
person who is not employed. This bill seeks to prevent small businesses closing
down and therefore to allow workers to enjoy a regular income. This would have
particular relevance to employees who would find working on weekends more
convenient, especially university students.
1.19
The committee received a number of submissions from small businesses who
attributed rising labour costs as the reason fewer staff are employed and for
shifts being cut short. For example, multiple franchisees shared the views of
this submitter:
I wish to provide my full support for the passage of this
Bill through Parliament as my labour costs have blown out since the
introduction of the Restaurant Industry Award regulated wages and penalty
rates. Accordingly I have cut back staff hours and employed less senior staff.
If penalty rates were abolished not only would my business be more viable on
weekends I would employ more staff and open longer hours. People expect us to
be open every day and night yet this can only be achieved if it is commercially
viable to trade through de-regulation of the mandatory penalty rates applied
under the Modern Industrial Award System.[12]
The current regulatory environment
1.20
A considerable amount of time was devoted to examining the current
regulatory environment and whether it was appropriate for the legislature to
interfere with the jurisdiction of Fair Work Australia.
1.21
The ACTU argued that:
If passed, this Bill would remove existing wages and
entitlements that have been determined by an independent tribunal established
by the Parliament for the purpose of determining such matters....There is no
basis for Parliament to override this process for a section of the economy.[13]
1.22
However, the Australian Chamber of Commerce and Industry disagreed:
The Committee will be aware that these businesses have a
personal face. They are largely micro businesses, many of whom are run by
families and owners (who) put in their own hours to keep open the doors. They
sacrifice time with their own families to run businesses during the day
servicing the demands of customers and consumers, only to return home at night
to do the paperwork. They run on tight margins and many have mortgaged their
own homes to take on a risk which ultimately provides for jobs in the
community. Small businesses should not be taken for granted and their costs
pressures, whatever their sources, need to be taken seriously and if required,
assisted by changes in the law.[14]
1.23
There were also concerns amongst small businesses that the objectives in
section 3 of the Fair Work Act 2009 do not afford sufficient protection
to small businesses. Restaurant and Catering submitted that:
The Fair Work Act also has in its objectives that there
should be special consideration of the needs of small- and medium-sized
businesses. The problem with the Fair Work Act and its objectives is that it
does not go far enough in relation to what looking after the special needs of
small- and medium-sized businesses means. We think this is an opportunity for
the Senate and the parliament to put something in place to help small
businesses continue on so that they evolve into larger and more profitable
businesses.[15]
1.24
It is therefore clear from a small business perspective that it is not
only desirable but necessary for Parliament to legislate for a more realistic
operating environment for small businesses. Given penalty rates have been a
common feature in Australia's labour market since the 1970s it is time that a
review of their effectiveness and suitability be undertaken particularly in the
small business context.
1.25
With this in mind, any legislated changes must be phased in over a
period of five years in order to allow small businesses to make the necessary
changes to their hiring and staffing arrangements. Consideration should also be
given to whether new arrangements for weekend work should apply to new
employees only. However, it must not be forgotten that there are small
businesses already on a knife's edge, and therefore must be given some form of
relief in order to continue operating in the short to medium term.
Recommendation
1.26
That the bill be passed with a five year phase-in period.
Senator Nick Xenophon
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