Attn whinging restaurateurs: Fair Work often cheaper than old awards
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The restaurant and retail industries regularly complain about the high cost of penalty rates. Journalist Luke Williams crunches the numbers and finds the Fair Work Act is cheaper than some previous awards.
If you believe some employers and the business lobby, penalty rates can kill just about anything: employment, shift lengths, business, Sunday trading, cheap shopping — even the economy itself. Restaurants, in particular, have become a cause celebre for the reduction of weekend and evening rates.
But newly compiled Department of Education, Employment and Workplace Relations figures cast doubt on whether the restaurant and food industry penalty rates are any higher under the Fair Work Act’s modern awards (introduced in 2010) than under preceding state awards.
DEEWR’s submission to the Senate penalty rate inquiry compares current penalty rates under the harmonised award scheme with pre-2010 state-based awards (the old awards did not cover every employer in the industry, but DEEWR says they are the most commonly used awards). Here’s an abbreviated version of the data …
Table 1: restaurant industry (click to enlarge)
Despite all the fuss, the figures suggests penalty rates are not significantly higher under the Fair Work Act than they were under previous regimes in some states, and are actually lower now than they were for many employers in South Australia and Queensland under the old fragmented system. Compare this to claims made in The Australian about restaurants suffering under the Fair Work Act’s harmonised award scheme.
There is no shortage of restaurant owners crying foul either. All the while ABS figures show the restaurant trade has been one of the fastest growing industries since 2007 (despite complaints by millionaire MasterChef judges). Take this Melbourne business owner, who wrote to the Senate inquiry:
“My labour costs have been spiralling and blown out since the introduction of the restaurant industry award regulating wages and penalty rates. Not only is it now getting to the point that my business may not survive but if penalty rates were abolished, my business would be more viable on the weekends and I would consider hiring more employees.”
Yet, if his staff were covered by the old state award he would be better off under the Fair Work Act.
Retailers also say penalty rates are hurting them, especially when demands for 24/7 shopping are on the increase and shoppers are switching to online. In an Australian Newsagents’ Federation survey, 45% of respondent newsagents said their penalty rates had “substantially increased” under new awards. Myer told a Productivity Commission inquiry that modern award penalty rates are costing it an extra $10-15 million a year.
But unless you’re doing business in NSW, SA and Queensland, the claims don’t quite match the data.
Table 2: retail industry (click to enlarge)
One industry which isn’t struggling at all is fast food, although it too complains about rising labour costs. The Australian Chamber of Commerce and Industry told the Senate’s penalty rate inquiry: “Some fast food operators have indicated that the modern award will increase labour costs by $1896 per week or $98,600 per year — an increase of 34.5% total labour costs.”
The precision of the figures leaves an impression of accuracy. But does it stack up? Not according to DEEWR.
Table 3: fast food industry (click to enlarge)
It’s also important to note that only about 50% of workers in the retail, restaurant and fast-food industries are covered by awards. The rest are in industry agreements, allowing for penalty rates to be offset against other benefits or traded in negotiations (although they must leave the worker “better-off overall” in order to be approved by the Fair Work Commission).
Average turnover in all these industries is between 25-40% higher on weekends.
“My labour costs have been spiralling and blown out since the introduction of the restaurant industry award regulating wages and penalty rates.” Pity, he will have to trade in the Merc for a Lexus this year. Come 2014, and possible LNP win, it will be Rollers all round be they restraunteurs, mining magnates or the humble Macca’s franchiser’s, all will win under the Abbott work choices Mark 2 (can’t say the same for those who earn them their millions).
Capitalism, the “ism” that keeps on giving (to some).
I never quite understand why the philanthropists who don’t feel capable of running a profitable business persist? Is it because they love food, or they love dealing with people, making them happy, feeding them? Do they feel an obligation to raise the level of culinary art in Australia?
I mean, if it’s so tough (or you’re so bad at running a business), why persist? Why not sell the joint and go get a job like the rest of us?
Could it be that the truth of the matter is that when you run a small business you can easily structure your tax arrangements so that your effective take home is pretty nice thank you very much. Could it be that things that wage earners accept as their personal expenses, you can claim as a business expense. Frinstance, I’d love to see a breakdown of how many 100k plus cars are privately owned as opposed to either owned by a business or the subject of a significant tax claim.
And while I’m on my hind legs, why don’t I hear complaints about the cost of rent or increases in olive oil prices or other things. Why does the price of paying people a decent wage, s#!+ hospitality owners so much?
Are they just greedy, dishonest, narcissistic whingers?
So much for the ‘no disadvantage test’…
It is a given in at least some parts of the industry, probably most, that it is impossible to run a restaurant or cafe/eatery at a profit under the exhaustive regime of taxes and wages, having to pay suppliers etc, and therefore they must cheat to survive.
It smacks of one of those rationalisations that people make to justify what is illegal, and often unethical behaviour.
I suspect, as SBH implies, that their culinary skills far exceed their business and arithmetical skills.
Sure, it’s a tough industry and for some it is unviable, but I can’t help feeling that many are making huge money and again, as SBH highlights, reporting low to average incomes and profits.
There are lurks, legitimate and otherwise, aplenty in small business.
And strangely I never hear a peep out of them for what constitutes a significant part of their expenses, that being rent. I can tell you that commercial rents are substantial, and perhaps entering into unviable rental agreements was the problem, not the fact that you have to pay staff.
But they would never raise their voice against the landlord, you can’t bully him.
This article makes me wonder how many businesses weren’t paying their staff properly if they thought they had it better under the old system.
Just pinch the tips. That seems to work for some.
I’m not arguing with the analysis of penalty rates before/after the Fair Work Act, but anyone who believes the restaurant business is a goldmine and considers restaurant owner “whingers” as belonging to the same category as miners or major retailers is either ignorant or deluded.
MJPC: Don’t you mean “whining magnates”?
A friend recently rang the ATO to inquire why $24000 had been put into her account. The reply was essentially that her husband’s income was so low that she was entitled to the money for the 4 kids. They own four units which they rent, as well as a house on the coast and he runs a healthy furniture business. I am sure he is not a crook but the system allows them to write off so much he only earns less than $30000 a year. I think that workers should be able to write off lots of stuff similar to these people, for example train fares to work, parking fees, to mention a couple.
Interesting to hear readers questioning a restaurant owners business skills.
I guess simply going and “getting a job” is far more noble and proves how much more intelligent you really are. Blood sweat and tears, perseverance and having the guts to create something like a business really means you are just scum hey?
yes counter point and they a) do it all by them selves (ie without the hard work of employees or the support from the tax payer) and b) for reasons of sheer philanthropy.
When restaurant owners whinge about wages they are being dishonest and ignoring the vast disparity between their take home and that of their employees. They begrudge their workers their legal rights. How would we view them if they so casually ignored food safety laws, or told all their suppliers that ’ well you know, times are tough and so I have to pay you only 60% of what your legally entitled to’.
Thanks to Australia’s long-standing civilised system of setting wages, every single person going into the hospitality industry knows what staff will cost.
Why then do they bleat and moan about having to comply with the law and pay people what they are entitled to?
It’s not their hard work that’s obscene, it’s them stealing (that’s what it’s called when you take and keep something that doesn’t belong to you) the wages and superannuation out of their employees pockets.
When you steal money from people you work with, then, yes you are scum.
@SBH. Have you got solid data on the numbers/proportion of restaurateurs underpaying staff, or are you tarring the entire industry based on a minority of dodgy operators?
Similarly, what knowledge do you have regarding average earning ratios of restaurant owners to workers, and how this ratio compares with other industries?
I’ve long harboured a desire to toss in my professional career and open a restaurant/wine bar/cafe, but after years of research and talking to people in the industry I’m convinced that the financials don’t stack up. Even were I willing to exploit immigrant labour and break every other law possible, I’d still be working twice as hard for half the pay.
The Modern Awards are great in principle and will even things out across the country, but the transitioning arrangements are a scarily comlex administrative nightmare. I’m not sure the charts in this article really reflect the current state of play with transitioning from old (state based) awards. Have no doubt, though, that retaurant workers will be in the Young Fogey’s sights. $12 or less an hour could be the reality in a few years for an adult!! This would’ve happened under the Old Fogey’s Work Choices Mark I.
Hi Rohan and thanks for your questions.
Addressing the last part first, I congratulate you on your rational, data informed decision. Judging by the amount of bleating, many people don’t make anything like that level of inquiry before starting a business.
Perhaps they should so they know what wages in the industry are. I remain mystified as to why people don’t do proper research before starting a business that they can’t make money out of and then complain about wages which are one of the most predictable, easily determined costs they will have.
Secondly, I think it’s important that you read what I posted rather than assuming that I hold a view. My posts relate only to those restauranteurs who moan about having to comply with the law. Nothing I wrote could be taken to apply universally in the way you suggest. A similar comment might be ’ I hate cyclists who run red lights’ wherein I complain about a subset of a larger group whose specific behaviour I object to. You see the difference to ‘tarring the whole industry’.
However hospitality workers are the largest group that call the FWO for assistance and this stoush all started when the FWO “warned the hospitality industry of a generally high level of non-compliance following an audit in three different states” and the industry responded by saying how confusing things are - a demonstrably (the DEEWR submission) untrue statement.
To your second point - the ABS 6302.0 - Average Weekly Earnings, Australia, May 2012 (there’s probably a later one but this will do) show that AWE for hospitality workers are THE LOWEST for any group of employees in Australia. The same series shows that the AWE for Aug ‘06 was $765. In 2011 the Department of Innovation, Industry, Science and Research published August 2006 figures for gross earnings for small businesses which show that 45.2% of owners earn that or more. Now that’s a gross figure and I’d be prepared to bet that they aren’t, as a rule, paying the same marginal tax rates as employees. That’s just not the way the tax system works. None the less I accept your point that I may have cast too wide a net here by indicating that ALL owners earned more than their staff - clearly it’s just most of them.
@SBH Thanks for the detailed response. I agree with you on most things.
It’s sad but true that there is a high prevalence of folks who enter the industry wide-eyed and disturbingly unprepared, then when things rapidly turn ugly resort to screwing their employees.
Rohan, I’m also somewhat distressed by diners who continue to think they should be served up sensational meals at MacDonald’s prices. If restaurants could charge a reasonable cost and diners weren’t so parsimonious, things would be better all round. Still that seems to be the culture of entitlement we live with
Huh ? Dining out in Australia is already pretty expensive, and since it’s one of the few retail sectors that hasn’t seen a major downturn in the last couple of years, quite clearly people are prepared to pay for it.