Look at the State I’m in

An interesting situation came up with a client who quite recently changed his business entity from a State based sole trader to a Company. This action was taken on advice from his accountant and I have no doubt there were sound financial and taxation reasons for this being done.

Regrettably however there were some quite profound repercussions for his business from an IR perspective. This was mainly due to the fact that the client’s business, up till the change to a Company structure, was subject to State IR legislation which meant that, given the nature of the business, his employees were Award free and subject only to the provisions of the Minimum Conditions of Employment Act.  For those of you who do not know, this is an Act that does not prescribe overtime rates, weekend penalties etc and the sorts of allowances that one typically encounters in an Award.

What wasn't considered at the time is that, as a Company, a Modern Award does now apply to the operations and, like most Awards, was prescriptive in its spread of hours, provisions for overtime, shift loadings, penalties and allowances.  All issues that previously did not need to be taken into account.

It took several months before this issue came to light and, in fact, only came about as the client was seeking advice on an unrelated matter.  Needless to say, when it was discovered it caused a number of serious issues for the employer. Not least being a huge impact on the business’ cash flow due to the sizable increase in weekly payroll.

Whilst this issue may be unique to WA it does raise the question of due diligence, it is a fact that the legislation that deals with taxation can, in a number of respects, ‘clash’ with provisions of industrial relations legislation. This issue was never discussed with the client by their accountant and one must therefore assume that such knowledge was unknown at the time, perhaps by both parties.

Some months down the track the situation has been stabilised with the client now compliant in terms of their IR obligations but it does provide a salutary lesson in seeking information, support and advice from a range of professionals prior to making a decision. These sorts of matters also have potential impact in the purchase of a business, where for example, a State based employer purchases an operation from a Federally based entity. These sorts of matters need to be clarified in terms of industrial coverage and the carry-over of entitlements etc for transitioning staff.

Got you worried? Make sure you seek out good advice, ‘knowledge is power’!

Author: Rob Littlewood, Clearwater Workplace Solutions

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