Chapter 1

Looking at the Big Picture — Before You Employ

In This Chapter

Working out what staff you really need

Finetuning your recruitment strategy and process

Understanding the importance of an employment contract and other rules

Getting the best from staff

Remunerating staff appropriately

Avoiding discrimination, bullying and workers compensation in your business

Ending the employment relationship properly

This business would be perfect if I didn’t have to manage staff.

Anonymous small-business owner

D eciding to introduce an employee into the business is a really important move for small-business owners. The commitment is similar to the other financial investments made toward the success of your business but with one important difference: You’re employing a person, not buying a piece of equipment.

I often use the analogy of a personal relationship to explain to small-business owners the nature of the relationship that you enter into when you employ staff. You start with the search for the ideal person, and then experience the initial joy at having found someone who seems to satisfy all of your desires. Next, you get to know each other and (hopefully) develop a rapport and solid foundation to your relationship. Then you settle into the long (sometimes short) journey towards what, in a working relationship, is the inevitable end of that relationship. During this employment relationship, you’ll experience highs and lows, learning experiences, personal growth, exciting events, great achievements and regrettable mistakes. The lifecycle of employment has myriad rules and regulations that must be followed and every phase of the employment relationship creates unique challenges. Hopefully when you look back over the life of the employment relationships that you have with staff, you’ll have only (or at least mostly) good memories.

In this chapter, I briefly take you through the employment relationship, from the initial search to the (hopefully) amicable end.

Understanding Your Reasons to Employ Staff

Some employers incorrectly assume that because a job has been performed in a particular manner in the past, that is the way it should be performed in the future. Nothing could be further from the truth. When a vacancy arises in your business or when you experience a moment of inspiration linking more staff to more business and profit, take the opportunity to test your thinking before you go ahead and employ someone.

Analysing what you really need

Deciding to employ staff for a job should arise naturally from a rational analysis of the operational needs of the business. If the analysis shows you don’t need to employ, don’t do it. However, if the analysis suggests that employing someone would be a good idea, go ahead with a clear understanding of the reason you have for doing so.

Job analysis is a basic tool to determine what type of job is needed for your small business. This means applying a simple procedure known as workflow design combined with an understanding of the chain of command (organisational relationships) to identify how tasks and decisions should be grouped to create a job. These concepts are covered in greater detail in Chapter 2.

Perhaps you’re wondering what phrases like ‘job analysis’ and ‘workflow design’ have to do with you. ‘I’m just a simple small-business owner who can’t be bothered with this techno babble!’ I hear you scream. While these terms may seem rather remote and daunting, analysing the flow of work within the context of a thorough understanding of who does what and when, and who decides what should be done and when, enables you to understand the reasons to employ people and the responsibilities that they must perform when employed to provide the best return on your investment.

Putting workflow design to work

In Chapter 2, I show how to conduct a simple job analysis using workflow design. Here, Figure 1-1 shows how the process works just to whet your appetite. The skills, knowledge, personal attributes and abilities of the people that you employ are applied in an organised operational system combining raw materials and business infrastructure to produce goods and services. The areas that you concentrate on for the job analysis are shown in the shaded boxes in Figure 1-1.

Figure 1-1: Factors of production.

Figure 1-2 shows how you can outline your business organisation structure. Doing so allows you to visualise:

• Accountability of people in the business to each other
• The efficient allocation of tasks and responsibilities
• The lines of communication necessary to keep the business coordinated and production moving
• Who has authority in making the key decisions

Figure 1-2: Example organisational structure.

Of course, the information highlighted in the preceding list isn’t all written down on your organisational chart. But to these building blocks you can add your analysis when deciding to recruit new staff and designing the job to best suit your business. Very large businesses tend to apply very complex methods to this task. Your small business has the advantage of being able to perform this task simply and more swiftly, thus enabling you to move quickly to adopt a competitive advantage.

See Chapter 2 for more on job analysis and designing a job that best suits your business needs.

Your Recruitment Strategy: The Key to Successful Employment

You must complete three fundamental tasks to help you select the best person for the job. The first task is describing the nature of the job including its purpose, range of tasks, and organisational context in which the person will work.

The second task is creating selection criteria that explain the skills, attributes, knowledge, experience and ability required to successfully perform the job. This criterion provides a template against which every candidate may be assessed.

The third task is to objectively rate the candidates to decide which one is most suitable for the job — that is, use a scorecard. These three tasks must be completed before you interview prospective employees.

Describing your ideal employee

You want to attract the best person to perform the job, so you need to describe the job and promote it in a way that attracts the right type of person. In Chapter 2, I explain how to build a job description, dividing it into sections that reflect the important elements of the job such as:

• Accountability
• Authority
• Business context
• Conditions
• Job title
• Purpose
• Responsibilities

Describing the elements of the job using these headings (drawn from the work that you do analysing the workflow and organisational relationships — refer to preceding section and see Chapter 2) makes the task much easier for you and ensures consistency in the way that you engage employees in your business.

Separate the selection criteria from the job description because each has a different purpose. This may sound unusual but think about the two in this way. The job description states what the person must do. The selection criteria states what the person must be.

When outlining your selection criteria, you should decide on your mandatory selection criteria and desirable selection criteria. Your mandatory criteria may include a relevant tertiary qualification, trade or certificate or driver’s licence. You then need to clearly state these mandatory requirements in the selection criteria. Sifting through applicants who can’t satisfy a fundamental criterion is pointless. The desirable criteria should include a mix of personal attributes (such as leadership, team player, good communicator, honesty and diligence), experience and competency (that is, how proficient the person is in performing the required skills, such as machinery operations, plumbing or haircuts).

The selection criteria should be drawn from the job analysis conducted before you decided to create and advertise the job. See Chapter 3 for a more thorough commentary on how you complete this task.

Investment in staff can be profitable

The employment relationship is fundamentally an economic relationship. But don’t be fooled into thinking you can treat it purely as such. Employing someone is both an investment in the financial success of your business and an investment in the growth and well being of another person.

The reason I like to view the employment relationship as at least in part an economic investment is because this invokes the useful (and, as experience has shown, accurate) analogy of how most people like to invest their money. Chances are, you only invest your money after rigorous research and then subsequently monitor and nurture the investment to ensure the best possible yield.

The actual calculation of working out whether a new employee is worth the investment depends on the nature of the job and the person you employ. For example, a person employed to build furniture in a small factory could be expected to contribute a sufficient increase in the production of furniture supplied to the market to cover the costs of employment, inputs and a margin for profit based on the expected price that such a good would be expected to be purchased.

The return from a professional employee such as an optometrist, medical practitioner or physiotherapist will be measured in the volume of patients seen and the revenue generated from treatment. Lawyers fit a similar model to that of the health professionals insofar as the volume of clients is a convenient measurement of productivity and expected return on investment in people. The faster the product and service is supplied to the market, the greater propensity to generate the revenue that provides the return on the investment in employment. I provide information in Chapter 2 about how to decide whether the investment is worth the money.

Checking Before You Buy Saves Heartburn Later

The actual selection procedure isn’t rocket science (despite what recruitment agencies may tell you). However, the process isn’t entirely a lucky dip either.

When looking for potential employees, do your homework and, if necessary, get assistance from people you trust before you employ. Organisation is everything when you’ve decided to recruit a person to your small business. You should search intelligently for the ­candidates who will suit your business.

Three areas are worth exploring when looking for new staff:

• Advertised applicants
• Family and social networks
• Unsolicited interest

Although problems are inherent when employing people close to you such as family and friends you at least know what you’re ‘buying’ when employing them. Some people may approach you for work — this shows initiative, which is a good thing. Even though you may not have work readily available keep a record of their details. When a job does emerge you can consider their suitability along with other candidates. Advertised applicants include the obvious list of people who respond to your advertisement of the job. In Chapter 3, I provide tips on how to manage the advertising, short-listing and selection procedures.

You need to be aware of several traps in employment. For example, pre-existing illness or injury, unlawful discrimination, criminal records and privacy all bear upon the recruitment and ­appointment of employees. Although these issues are complex in nature, you can take some simple measures to avoid the traps, including knowing how and when to ask questions. How and when to record information provided by potential employees, and what you can practically do to accommodate the individual ­circumstances of people who express an interest in working in your business are ­covered in Chapter 3.

Getting the Paperwork Right

I can’t emphasise this point enough. If you fail to establish the necessary employment policies, procedures, contracts, payroll and employment records, and to provide required information to new staff such as superannuation choice forms, the fair work information statement and staff handbooks, you risk heavy fines and expose your business to claims of underpayment and other breaches of the law. In Chapters 4 to 7, I provide you with every bit of information that you need to document the employment relationship so that you are well organised, and compliant with the statutory and other regulatory requirements laid down by the law.

The importance of an employment contract

The employment contract is the fundamental record of employment from which everything else flows. You need to be able to draft an effective employment contract, and understand the National Employment Standards (NES) that underpin all employment conditions and the relationship to modern awards and superannuation. I cover the NES in Chapter 4 and employment contracts in Chapter 7.

You can’t separate the cost of employing staff from the agreement that you make with an employee to work for you. Calculating the real cost of employing staff, including the hidden costs, is important — see Chapter 6 for more on this. Equally important is investing early in the person that you employ to provide the best chance of success — see Chapter 8 for more on how to structure a really effective orientation program for new staff.

Without rules, there’s chaos

The National Employment Standards, modern awards, minimum wages, workplace health and safety, workplace rights and discrimination. . . so many rules. Where to start? You must comply with the rules of the game — otherwise, you risk incurring substantial penalties and potentially losing your business. These minimum standards of employment are the non-negotiable underpinnings of every employment relationship that you commence. Ignore them at your peril.

I explain these minimum standards of employment in Chapters 4 and 5, and in Chapter 7 provide a plan of action of where and how they should be applied in employment contracts and employment policies.

Managing the Employment Relationship through the Highs and Lows

Once you’ve employed someone, the fun really begins. . . or should I say misery begins? The answer depends on how well you manage the initial orientation and performance expectations for new employees.

Start with a thorough orientation program. The three key benefits you can expect from your employees after a successful orientation are

• Commitment to the business
• Greater productivity over shorter time frame
• Less reliance on supervision

Three drawbacks from ineffective orientation programs are

• High turnover of staff
• Low return on investment
• Supervision time greater than it should be

In Chapter 8 I cover how you can implement a structured orientation program over six weeks that will gradually enable your new employees to reach the standards of work performance that you want them to achieve. Of course, training and encouragement doesn’t stop there — you want your employees to continue to work to a high standard. The best way to see this occur is to define, facilitate, encourage, measure, review and learn from past individual work performance. This cycle is summarised in Figure 1-3.

Figure 1-3: Staff performance management cycle.

You must be disciplined and persistent in your approach, and track your outcomes. This approach requires some record keeping; however, the extra time spent on this is worthwhile for two fundamental reasons:

• Employees want to do well and be rewarded for a job well done. A structured system that defines, facilitates, encourages, measures and rewards performance aligned to your business goals gives you a better chance of achieving your business goals.
• When you apply this system and record employee performance results, you can hold them accountable for their work performance. This provides a platform for even better performance and, in the event that the employment relationship ends badly, you can defend your business against accusations of unfair dismissal.

I explain how to design and implement this system in Chapter 9.

Pay, Pay and Pay Again: Remunerating Staff

As I mention earlier in this chapter, the employment relationship is fundamentally an economic relationship (refer to the section ‘Investment in staff can be profitable’ for more). Therefore, you must get the remuneration right for staff and right for you. Paying wages, allowances, bonuses, superannuation and fringe benefits may all form part of the remuneration mix you provide to employees in consideration for the work that they perform for your business.

Australia is awash with laws regulating the way you pay employees and you must be on top of all of them, and keep up to date. You need to be aware of your obligations to pay ever-changing minimum rates of pay, allowances, penalties, loadings and everything else provided in modern awards and national minimum wage orders. I cover staying on top of changes in Chapter 10.

Another aspect to be aware of is getting the best value from the ‘wage–work bargain’ made between you and your employees. For example, you may pay employees more than the minimum rates prescribed by the law. These higher wages or salaries can be linked to achievement of performance standards or additional hours of work, as well as that extra effort that you need from staff to keep a competitive edge over larger businesses.

I provide tips in this area in Chapter 10, going through the various forms of remuneration and what to do with them, including

• Deciding on the right level of remuneration compared to your competitors
• Implementing tax-effective salary sacrifice arrangements
• Negotiating with unhappy staff
• Paying bonuses and incentives
• Offering fringe benefits and non-monetary rewards

Making Sure Everyone Behaves Themselves

Before you put a group of people in the same place and force them to work together for up to 8 hours a day, 5 days a week, 52 weeks each year, you first need to set some ground rules. These ground rules should cover everything from dress codes, use of the internet, intellectual property, confidentiality and honesty, to respecting each of your fellow employees. Some of the areas that are most likely to get you in trouble if you don’t manage them correctly are anti-discrimination, workplace bullying, and health and safety.

Employment policies and procedures are really effective tools that you should use to inform and educate your staff and guide you when you need to intervene when things go wrong. In Chapter 11, I explain how you can resolve conflicts that arise in your business between employees and with yourself, using a simple step-by-step approach.

Anti-discrimination in the workplace

You perceive and act on differences around you every day to chart the course of your life. This is a simple fact of life — without the ability to distinguish the differences between competing choices available to you, you wouldn’t survive more than one day of adulthood, let alone operate a successful small business. Sometimes the choices people make are good ones and sometimes they unfairly affect others. However, not all unfair choices are unlawful — but some are.

Discrimination in employment is unlawful where an employee is disadvantaged or treated less favourably by an employer in some aspect of their employment because of a particular personal characteristic or attribute. In Chapter 12, I explain the numerous grounds upon which an employee can claim to have been unlawfully discriminated against at work. Importantly, I describe how you can stay out of trouble by implementing good education programs at work and modelling good behaviour.

Bullying makes for an unhappy workplace

Most people used to think of bullying as something that kids did to other kids at school. In recent years, people are recognising that such behaviour also occurs in Australian workplaces, and laws are now in place prohibiting workplace bullying and harassment. People now know about the personal impact on people subjected to bullying, and the size of the financial penalties imposed on employers who don’t prevent it occurring in their businesses.

The term bullying is used to describe behaviour that may intimidate, humiliate or otherwise injure a person physically or mentally. The Fair Work Act 2009 states that an employee will have been bullied at work if you, an employee or group of employees at work:

. . .repeatedly behaves unreasonably towards the employee, and that behaviour creates a risk to the health and safety of that person.

On the other hand, the Act states that:

Bullying does not include reasonable management practices including performance management conducted in a reasonable manner.

So the work that you need to do to properly address your obligation to ensure bullying doesn’t occur comes down to what’s considered ‘reasonable’ in the circumstances. This can be a tricky concept to get right, particularly in such an emotionally charged issue. In Chapter 13, I explain what’s reasonable and not reasonable, identify the factors that are most likely to indicate a high risk of bullying behaviour, and some tips on how to prevent and resolve bullying complaints. I even provide you with a model employment policy to use in your own small business.

Health, safety and workers compensation

You can’t ignore the often onerous obligations to ensure the health, safety and welfare of employees and others who are affected by your small business. What you can do is establish policies and procedures to minimise risk to health and safety commensurate with the nature of the work performed in your small business. Prevention through education is a primary method of addressing the general duty of care, but risk management is the key to ensuring people are safe at work. In Chapter 14, I explain the regulations operating across Australian states and territories, your duty of care and the various obligations that flow from this general duty.

Risk management underpins each and every state and territory workplace health and safety regulatory system. Risk management is a systematic examination of any activity, premises or operational system to

• Identify risks
• Evaluate the likelihood and potential consequences of the risks
• Act to eliminate or control the risk
• Review and monitor health and safety outcomes

In Chapter 14, I provide a step-by-step procedure to help you implement your own risk analysis and management system to address workplace health and safety.

In Chapter 15, I concentrate on what happens when an individual employee suffers a work-related injury or illness, and discuss your obligations and options on returning them to work. I know that dealing with treating doctors can be a difficult procedure and so I provide you with tips on what to ask and how to ask it. I also guide you through some of the traps — an injured employee may not always be capable of returning to their pre-injury duties. I cover your options in what is undoubtedly one of the more difficult aspects of managing the relationship.

Ending the Employment Relationship

All Things Must Pass was ex-Beatle George Harrison’s triple album, released shortly after the band had split in the early 1970s. The album’s title says it all. All things — good and bad — must eventually pass. And so it is for employment relationships. Sometimes, the passing is amicable and sometimes it’s beyond your control. Other times, the employment relationship ends in acrimony. In any of these circumstances, you have obligations and entitlements that you must observe, particularly in three main areas:

• Dismissal
• Redundancy
• Resignation

Each area has certain obligations relating to how much notice must be provided, paying out accrued leave, superannuation, taxing any payments, and withholding payments. I cover these obligations in Chapters 16 to 18.

When you dismiss an employee for unsatisfactory work performance or misconduct, this single act can trigger a massive system of rights, obligations and institutional interventions into your small business, unless you’re able to manage it correctly. I explain the rules governing dismissal in Chapter 17, and provide a checklist of action to ensure that you comply with the rules.

Nothing stands still and so change is inevitable with your small business. Introducing changes can affect your staff’s jobs. In Chapter 18, I cover these affects and provide you with a roadmap for how to navigate your way through the hazards along the path of changing to a better business while looking after your staff — whether they’re staying on or passing through to another working relationship.