23 Feb 17 Are you employing on a Commission Only Basis?
Are you employing on a commission only basis?
Or do you have a commission only position.
It could be that you are breaching the Fair Work Act. The only positions that exist for commission only that I know of is under the Real Estate Industry Award 2010 MA 000106. This means that unless your position or job is under an Award that allows for commission only, that employment may be in breach and therefore attract penalties not to mention the employee can go back 6 years and attempt to recover any unpaid entitlements from the employer.
What’s the problem if everyone agrees?
It is typical for an employee who is under a lot of pressure to find a job to take the first thing that they are offered. That employee may be thinking that if it doesn’t work out and they don’t get the money anticipated at least they are working and can look for another job. Sound familiar? There are 100 scenarios in which it looks like a good idea at the time for the employer and employee. Another way that businesses get around this problem is by turning the employee into a contractor. This has its pitfalls too and you could be entering into a sham contracting arrangement which the ATO will be very interested in.
What’s the down side?
A fairly recent case outlines the pitfalls of taking commission only workers. This case involved an employer Longridge Group Pty Ltd who was in the business of constructing and selling new residential homes. The employees were employed to sell those homes on a commission only basis. The entire matter ended up in the Federal Circuit Court because of, among other things, failure to pay minimum wages and other entitlements, and breaching the Fair Work Act and Award.
The court took a dim view of these breaches and after a lengthy decision and penalised Longridge Group Pty Ltd $29,790 in penalties. The Court also said that the purpose of the penalties was to deter other from doing this as well as for this specific company doing it again.
What can you learn?
The lesson is simple… don’t employ or be employed on commission only basis unless the specific award allows for it. Even then the Award will stipulate how that commission is set out and how much. The penalties are high, it can go back as far as 6 years and for contractors you may be penalised by the ATO if it is found that the contracting arrangement is a sham.
What can you do next?
If you are thinking about employing or being employed on commission only basis give the Fair Work Ombudsman a call and have a chat to them first. Don’t worry everything remains confidential and as they are there to provide information only you can be certain that they will at least point you in the right direction.
Have a chat to the person who does your payroll, make sure they have up-to-date information on what the rules are. Finally have a quick word with your accountant, they may be able to steer you in the right direction with regards to sham contracting arrangements.
How can MJT Law help?
We can help you navigate the Awards and the system to make sure you are on the right path and are not leaving your business open to litigation and taxation risks. Give us a call if you have any questions, we are here to help.
By: Melanie Thorley