McKENZIE, Mr Mark McKenzie, Chair, Council of Small Business Organisations Australia

STRONG, Mr Peter Strong, Chief Executive Officer, Council of Small Business Organisations Australia

CHAIR: Welcome. I understand that information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. I will now invite one of you to make a short opening statement, and at the conclusion of your remarks I'll invite members of the committee to ask questions.

Mr Strong : One thing I want to say is that in small business we deal with reality, and in small business we more often than not eyeball our workers, and they eyeball us, and in most cases we get on. You have a little barney here and there, but you get over that, like all families do. And we move on. There are some businesses that are not doing the right thing, and we work very closely with the Fair Work Ombudsman—who, I must say, is a world-class regulator, as the Australian Public Service is world class—to make sure that those people who are gaming the system to the detriment of other small businesses and to the detriment of their employees are held to task.

The real world consists of about 2½ million small-business people who between them employ somewhere around five million other human beings. We are on a real planet. We're not on a planet that we hear about quite often from those who push ideology from the Left or the Right; they live on different planets altogether. What we need for small business is to remove risk, and we need to make sure that our employees actually know what their rights are. At the moment—and I know this from personal experience, but for a lot of businesses—you're not even sure what award you're supposed to have. The Fair Work Ombudsman will tell you what award it is, but they also say they might be wrong: 'They won't fine us if we get the award wrong, given that they've told us the wrong thing.' But of course you still have back pay; this is people's money. And that can be a lot of money, enough to push a business over into insolvency. So, the risk needs to be removed, and let us say that this bill, which we support, is incremental, that they're incremental changes. They will remove some of the risk for small business, and they will mean that employees will end up with more understanding of what's in front of them and more understanding of their rights.

The best example of the change that will make a difference is: I did not know, when I employed part timers, that, if I yelled across the shop to my part timer, 'Can you work Thursday from 10 to three, because Betty has got to go to a funeral,' and that part timer said, 'Yeah, that'd be great, not a problem,' or made a call, came back and said, 'Great stuff; I'm happy to get the extra five hours,' penalty rates were involved. Not many employees know there are penalty rates involved, because it is nonsensical. It is a Thursday from 10 to three. It's cheaper for me to employ a casual than to give my current staff the work they would like to have. That's just one example of the difficulties we didn't even know existed in most cases.

People within the workplace relations club, of course, understand all these sorts of things because they're in the club. They want to maintain complexity because they make money from it; in this I'm including industry associations, who make money from the complexity. We want it to be simple. We want it so, when an employer employs someone, they pick up their smart device, they look up the conditions, they find them really quickly, they both see the same things on that device, and then they get off and do their job.

CHAIR: Thank you, Mr Strong.

Senator PRATT: Mr Strong, I can understand the point you're making in relation to casual workers and overtime attached to permanency, but would you not be concerned that it'll be much easier for the big businesses that small businesses compete with to use these provisions in a whole range of other ways which will be very difficult for small businesses to respond to?

Mr Strong : I take your point; some big businesses have gamed that. We saw Woolworths, the SDA, Coles and a whole range of other people negotiate lower penalty rates for Sundays, to the great detriment of small businesses, who, in a lot of cases, couldn't even open. We do see that happening. We see at the moment, with the part-time issue, that quite a lot of awards—and the agreement between Woolworths and the SDA, in my understanding—say that you don't have to pay penalty rates to part timers who work extra hours. So, yes, it's done all the time, and quite often it's done as part of an enterprise agreement. So we're asking for a change to the award so that we get the same conditions that big business has.

Senator PRATT: I'm not sure that this legislation will fix those relativities. I'll be certain to dive more deeply in, because my understanding is that the Woolworths agreement is not the same in that context.

Relative to issues like JobKeeper: this bill is called the Fair Work Amendment (Supporting Australia's Jobs and Economic Recovery) Bill. JobKeeper is winding back. This legislation does nothing to fix that. Where do you see the relativity of JobKeeper in terms of the need for it to continue? We've got many regions still being affected by COVID—small business, tourism and many other areas. IR changes don't help you recover in that context, do they?

Mr Strong : I'll pass to my chairman.

Mr McKenzie : I'll probably add an adjunct to the question you asked earlier. One of the central problems for small business, given we employ just over a small majority of the Australian workforce, is that we have a situation where we are award dependent and legislation dependent. We do not have access to EBAs. One of the things we tried to do through this process was to see whether there was an opportunity for a carve-out. Within that context, there is an inherent injustice to small business in the way the system operates at the moment. As Peter said, this bill doesn't address a lot of those issues but we didn't expect it to; within these things, it's all got to be done on an incremental basis. Remember, our members are associations that have members; collectively, our 39 bodies are about 1.35 million small businesses.

We've had significant issues associated with the casualisation issue and the risk that that entails. Our initial advice after the first case, which I think was the Skene case, was that it wouldn't affect us; it related to a thing called a labour hire agreement, which we don't use. But after the Rossato case, all our legal advisers were telling us there was an issue that needed to be addressed. Within that context, there has been a risk environment in terms of taking on new staff, and that is quite permanent. As an industry body working at the coalface with these businesses, I can say that the definition that's been included in 'casuals' will remove some of that risk, because it provides real clarity. I know you've had parties argue the merits and otherwise about whether the legal argument is right, but as a small business we don't have time to employ lawyers to argue and say what is the appropriate case.

We were very heavily involved in the casuals working group; we found ourselves wedged in the middle between the unions and the club, as Peter calls it—the big employers. We believe we arrived at a very good definition that could be understood at that point; it is the removal of the risk of employment, and it's simplifying the employment particularly of part timers, which will make it easier for people to employ. Within that context, we think it will be an incentive to bring more people into your business. At the moment, post COVID, a lot of our businesses are working with the mindset of saying: 'I got hit around COVID. I'm just going to operate at my current level. Looking at the labour force risk, I'm not going to take additional staff on.' While they are incremental, there are significant changes in this bill that de-risk elements of that employment.

Mr Strong : With JobKeeper, it's finishing up. We've been in discussion with the Treasurer's office about extending JobKeeper, or whatever you wish to call it, to those industries that are affected—the event industry and a whole range of others—and to geographic areas; as we've seen, some businesses in the CBDs of Melbourne and Sydney in particular have been hit hard. JobKeeper, I think most people agree, needs to now be targeted to those businesses that need it, to give them the incentive to keep their staff on.

Senator PRATT: I'm concerned by what you've said on the trickle-down effect of, 'It'll get to us eventually.' That's not necessarily good for workers in this context: when you've got an economy where people aren't really being encouraged to spend at the moment, that disproportionately affects small business. In particular, we've seen that big supermarket chains can stay open but that your sector, in many ways, has been the first to be hit. With stagnation and freezes in public and private sector wage growth, big business gets to take home a greater proportion of that than small business does—when wages are frozen.

Mr Strong : First of all, with our wages, one thing we always look at is that our wages are globally high. That's a good thing; that's the success of the economy, I must say, and the success of unions through the eighties and nineties. We have a very high minimum wage. We've got good conditions. We're one of two countries that have long service leave. We don't want wages to go backwards. We've had discussions with some people about the so-called gig economy and what that might do, but we believe that that is under threat unless we continue to make the workplace relations system friendlier for small business. Big business will work with it, whatever you do. This morning we heard that even the BCA—who we do not see as a member of the IR club, by the way, because its individual members do the work there—struggles with the enterprise agreements, which is not our bailiwick.

If I'm going to employ someone, what's the risk? I want to go out and say to them, 'There's less risk now as a result of this than there was before.' Before, even though you didn't know it, you would have been noncompliant with your part timers. If someone decided to complain, you would have been done over. Most employees don't even know about that. From our point of view, there are some industry sectors that have been affected, and small business has done very well—the butchers in suburbs. Mr McKenzie is from the service station sector; he can talk about some that have been hit hard, while others have done very well indeed. That's the information we've got to gather, so we know exactly where to go and supply the support that we need to supply; Victoria is certainly a place where we need to do that. Then, with workplace relations, we have to make sure that the employer can say to someone, 'Great, you can start next week,' follow some basic rules and not feel threatened by it. At the moment, I would never employ anybody again; the people I employed were great, but why would I do that to myself at the moment?

Mr McKenzie : The other point I'd make is that the proposition that small business has been hit harder than big business isn't actually correct. It doesn't align with our experience in this process. We certainly have sectors like tourism, hospitality, entertainment and even Screen Producers—one of our members—who have indicated there is a significant hit. But we have seen a lot of businesses do very well. Even if I look at something like the grocery space, what we saw during COVID, particularly in the national lockdown and also in Victoria, was people shying away from the big supermarkets and going to the smaller corner stores and so on. We have had beneficiaries in that space; it hasn't been a ubiquitous negative impact.

Senator PRATT: I'm going off my local experience in the Maylands lockdown recently. Coles was open but no-one else was allowed to be.

Senator WATT: Can I clarify one thing that Mr Strong was saying there, just going back a few minutes? I think you were essentially making the point that one of the reasons you support the amendment around casuals is the concern among your members, who see a greater risk in putting a casual on in light of those decisions. How then do you explain that the majority of employment that's been created since the COVID pandemic has actually been casual employment? I mean, the figures that the Centre for Future Work put is that 62 per cent of all jobs created between May and November were casual. It doesn't seem like people are having trouble putting on casuals?

Mr Strong : If I can answer that, the first people to lose their jobs were casual. The complaint was there: it is awful if you are a casual and you have lost your job. The permanents aren't going to lose their jobs. When they start losing their jobs, then we have a problem; that's why we have casual employment. So it is good to see the great majority of them, not all of them, have their jobs back. It is actually good news and it is part of that cycle. It is also: because we live in uncertain times and I have my house on the line, is it riskier for me to put a permanent on or a casual? Once I get the casual on, if things look better then a few of them will become permanent, I have no doubt, but I don't know how many. That's the position. Casuals have lost their jobs, they've got them back again and now we are going to look to the future. In regards to workplace relations, we want to say to them, 'Don't worry if you turn your casual into a permanent part-time or whatever; it is okay.'

Mr McKenzie : I think the issue is there is no legacy effect. We're talking about putting them back on again. The contingency, the liability that I am building over time, is only very short; it has been since I put them on. It is not one that is being carried over a long period of time. As Peter said, most businesses are working on the basis of replacing because they didn't have any staff during that process. Now they are putting back, so it is not new job creation, it is not increased casualisation; it is replacing those jobs. The challenge for us now though is as small business are moving to omni channels—multiple channels for marketing products—that is the opportunity for them to grow. It is going to be the casuals who look at that. It is that expansion, the expansion beyond pre-COVID output, that is being put at risk. All of us as industry bodies are running around telling our businesses that they had no problem with the Skene decision. It wasn't until we got the lawyers talking to us as industry bodies, saying there is a problem as a result of the Rosato finding. This definition solves that problem for us.

Senator WATT: Again, if we've seen the fastest growth in casual employment we've ever seen—I accept that many of those jobs might be simply people returning back to work after being closed down—it's a bit hard to argue that people are scared of putting on people as casuals, isn't it, if we're seeing the fastest-ever casual growth?

Mr McKenzie : Except I'd say to you that, if you have no staff, you have to put someone on or you close your business down. We've seen businesses that shed them all putting them back. It is the growth beyond the pre-COVID level we're talking about. It was an issue that existed before COVID and before the loss of that casual workforce.

Mr Strong : Can I also add that most of those people want to be casual. They don't turn up and say, 'Can I now be a permanent?' They were a casual before. They understood they got the 25 per cent loading and most of them would want once again to be casual. That's just the nature of the experiences that our members have had.

Senator O'NEILL: Can I ask a clarifying question, because we have heard evidence from two sources. The Centre for Future Work talked about the impact of unstable work. In fact, they said an economy that has up to a quarter of its employees in highly unstable and insecure income not only does a whole lot of damage to those individual workers and their families who depend on secure incomes to meet their mortgage payments or rental payments but it also does wider to economic damage because more insecure people are less likely to take risks and invest in things. They're living week to week—they don't know what their income is going to be—and that dampens consumer spending overall, which affects the other small businesses in the ecosystem that you are responsible for. That's the first thing that I'll seek your opinion on, because there is a macroeconomic impact that we're talking about here. Answer that one first, and, if I can, I'll come back to the other one.

Mr McKenzie : I suppose the issue when we look at this—it's been interesting—is that, when you actually look at all the literature—we play in a space: we play in small business—you see the big club arguing with each other, with various studies on whether casualisation has increased or not and so on. The key thing for a lot of small business, particularly in terms of consumer sentiment, is that we have been watching the fact that net household savings have almost tripled from their traditional level, and we've been the beneficiaries of that as it has flowed through, in terms of small business. The biggest indicator for us—and, I suppose, why we look at this debate being a little odd, if I can be a little impudent in this—is that our small businesses have been operating with the casual-to-permanent conversion clauses for 10 years. They are required to offer casual-to-permanent conversion, and the level of take-up is less than two per cent, on average, across all the businesses we've actually worked through. So there's this sense that we hear people talk about what workers, business and consumers might actually think, but the evidence from 10 years of experience with people being offered casual-to-permanent conversion is that they rarely take it. There are two reasons.

Senator PRATT: Yes, they need to keep the income in their pocket week to week.

Mr McKenzie : Yes, and I think this boils down to the fact that, if you're working in a difficult environment, asking someone to forgo that cash in hand as opposed to putting entitlements away is pretty hard.

Senator O'NEILL: That brings me to my second question.

CHAIR: I need to go to Senator Small. I'm just looking at the time.

Senator O'NEILL: It's on the casual loading. You might want to comment on this or, if you need to, take it on notice. I took earlier witnesses to task on this. The 25 per cent casual loading claim that is widely reported in the community is highly disputed by Per Capita, who gave us evidence this morning based on work from the University of Melbourne, who based their figures on the Australian Bureau of Statistics. The casual loading actually paid averages between four and five per cent, not 25 per cent. So this is a mythology that's out there that needs to be critiqued. When it keeps being repeated, I have concerns about that.

CHAIR: If you can take that on notice, that would be good. Senator Small, please.

Senator SMALL: Thanks, gents. It's interesting that you're talking about the risks of hiring for job growth that small business wants to see as the economy recovers from COVID. I note that 93 per cent of jobs lost to COVID have, in fact, been restored. So can you talk a little bit more about the risk factors that make you hesitant to hire people and allow more Australians to enter the workforce, particularly as they relate to issues around casuals and the definition of casuals and the way in which entitlements are defined and paid by a business—either the 25 per cent loading or a double-dipping once that casual loading is paid but then a future claim is brought for leave and entitlements?

Mr Strong : As to the future one, I'll leave that with Mr McKenzie. But, on the other areas, the thing when we talk to small business is that they know they're non-compliant with the award. First of all, they're not sure which award, so all of a sudden you're in trouble. You ring up the Fair Work Ombudsman, and they have a special helpline for small business. They base their decision on what you've told them, and then you go off and do that award. The hospitality and retail awards were the ones I had to choose from. I chose retail because it paid the most and I was safe. But, if someone had turned up and said it was hospitality, I would have said, 'Well, I'm safe here,' and they would have said, 'No, you didn't pay the right allowances and penalty rates', because they're different, and I would have had to pay that—it would never happen, I hope—even though I'd paid more money. So this is the fear we have. You think, 'What's going to happen to me?' We've seen rule changes being made and backdated. We're seeing the unfair dismissal code being gamed by some employees, without a doubt. There are bad employees and bad employers. So you hear all this and you think: 'Why would I go and employ somebody else? I have a good team here now and I don't want to put anybody else on, because I'm just not sure how I'm going to stand on this.' The casual stuff has created concern. The first decision didn't, but on the second one we're hearing from hairdressers and others saying, 'Is it wrong and bad of me to put on a casual because I only have two weeks work?'

Senator SMALL: Can I try and distil that: what you're hearing from your members is that this reform gives them the certainty to hire more Australians and pay better wages?

Mr McKenzie : Yes. Perhaps it would be best to give you an example. Rather than put words in your mouth, I'll come through over the top. A small business that's operating on the Mid North Coast has two service stations up around the Taree area and two in northern Sydney. When they looked at the liability—they came to us and we got some legal advice post-Rossato suggesting that there was exposure—that business worked out that its liability was potentially, if it were taken to task, a quarter of a million dollars. When that business is earning, net, about $110,000, that's two years of profit. The issue we have at the moment, and what we are hearing about risk, is that these businesses need to operate, so they'll always replace. They'll replace like with like—

Senator Pratt: If you want to pose post-Rossato as a Trojan Horse—

CHAIR: Senator Pratt, please let Senator Small finish his questioning.

Mr McKenzie : It goes back to Senator Watt's issue. I'll replace, because we've got to do that to actually operate, but it's a disincentive to growth. I won't now go take a fifth and a sixth one, because I'm too concerned about the liability I'm carrying. It's creating a drag.

I know that there are all sorts of people who've talked about legal definition, but, for a small business owner making that decision, if it's a family-owned business, they're not going to seek legal opinion as to whether that liability is there or not. That's why, in the working groups, we worked very strongly to ensure there was a definition in place that met the objectives and created the certainty. We believe that's what's been embodied in this bill.

Senator SMALL: Can I pick up on that point around wage underpayment or missing worker entitlements? Where this bill seeks to make the rules clear, are you concerned about the provisions that actually increase the penalties for employers that do the wrong thing?

Mr McKenzie : No. It might be a strange thing to say as a business but labour cost, in particular, is usually a fairly significant cost to a business and it defines the cost of their provision of services. When you're operating in deeply competitive markets, if you don't have very firm focus on wage underpayment, with significant penalties to prevent people going down that path, you create a competitive distortion. As a body, as COSBOA, right from the outset when this first came on the table, we argued fairly hard to make sure there was a real process in place to weed out that wage underpayment, because it creates a competitive threat.

Mr Strong : That's deliberate wage underpayment. We said to our members, 'We will now go hard to make sure it's simpler, so we won't make those mistakes like Maurice Blackburn did.' They were experts. It's simpler, and it's simpler for the Fair Work Ombudsman as well. They'll catch the bad people much quicker with a simple system. A simple system is good for everybody—the workers and the employers.

Senator PRATT: Mr Strong, if, under the existing system, you've offered your workers casual conversion and they say no, then there's no liable—

CHAIR: No, Senator Pratt. Senator Small has the call.

Senator SMALL: You referred to a significant amount of small business employment using the awards system, which flows very strongly from the Fair Work Act that was introduced by the previous government. As it relates to those awards that you mention you have personal experience of, can you confirm that the differential between a full-time permanent rate and a casual rate for employees performing the same work is, in fact, a 25 per cent casual loading?

Mr Strong : When we employ someone and they're a casual, we add 25 per cent. It's a calculation. It's done by software. It's 25 per cent; always 25 per cent.

Senator SMALL: Can you shed further light on why you see the changes to the awards contemplated by this reform as being important to your businesses?

Mr McKenzie : One of the biggest issues, and I think one of the reasons why small business tends to have a very volatile workforce—we have people go in and out—is we have to accommodate work and family balance and, as a small business, you have to do it at that level, because you don't want to turnover. As Peter had indicated earlier, there was some confusion on the flexible part-time in particular. If I'm extending someone during normal work hours, then I would thinking that I'm just paying the normal rate, but a lot of businesses didn't know they should have been paying additional loadings on that fee. It actually simplifies the process for a lot of businesses.

One of the arguments we had backwards and forwards—I won't say it was an argument; it was more a spirited conversation—with the ACTU and our panel was, if you want reduced levels of casuals, the way to that is to have flexible permanent part-time positions. Within that context, as long as you've got a reasonable flaw in making sure that we don't end up with everyone at zero and you put hours in, if you're talking about someone in the business working two days a week—the bill talks about 16 hours, that's where we landed—then beyond that you're talking at the point of, 'I'm then able to create the flexibility I need in my workforce while creating the permanency and the reduced precariousness of employment. To that end, it's a positive.

Senator SMALL: In terms of the level of casual employment over time, notwithstanding the unprecedented event of a once a century global pandemic, do you see these reforms as either increasing or decreasing the incentive to have casuals or to give employees some security?

Mr Strong : It will decrease casuals, because it will be more cost-effective to give your permanent person the work that they want. Could I add to this that there's also the issue that, in small business, it's a person and a person. These are two people. When we have—and this happens in the Master Grocers Association, with the IGAs et cetera—somebody who says, 'Look, I'm happy to start at six and finish at two or three'—or whatever the hours are—'on normal rates, because my partner will get the kids off to school, and then I can go and get them home,' and the employer says, 'Well, I'm happy to open the shop and pay you that, but I can't, because someone somewhere, who doesn't know you and your family, said, "No, you cannot do that,"' this is one of the problems you have when you're dealing human to human: you want your employees, who are part of the family, to get what they want, but the system says, 'No, you're not allowed to do it.'

Senator SMALL: That gets back to your point that when people are working side by side for long hours, with fewer than 20 employees, which is what you're representing, the intent to do the right thing is strong.

CHAIR: This will be the last question, Senator Small. Then we need to move on.

Senator SMALL: Thanks. On the point of stagnation in wages, what do you see as the factors that will lead to wage increases over time in Australia?

Mr McKenzie : Wage increases always come because the business is doing better. It's earning more income in that process.

Senator SMALL: Which drives secure employment.

Mr McKenzie : That's right. We go back to the point that we made at the outset. We're under no illusions. This bill doesn't change the world. We would have loved to see a whole lot of other things, but there are a lot of other players. This is an incremental change that will derisk the nature of doing business, derisk some of the labour force issues and allow businesses to step out. It's not going to solve the problem on its own. We're liaising with the ABA and the finance community on the flow of capital, because there's reluctance there as well, which is natural when you have a once-in-a-lifetime pandemic that destroyed economic activity. So, to that end, we see this bill as being a vital part of the cog of moving forward for businesses to create the confidence for them to grow. Within that context, we see it as a very positive move.

CHAIR: Thank you. That concludes your evidence here today. You're free to go. Any further questions can be put on notice.

Senator Pratt interjecting—

Senator Watt interjecting—

CHAIR: No, I'm sorry. We've got to stick to the schedule. The schedule is something that we need to stick to out of courtesy to the witnesses who are appearing before us. That concludes your evidence here today. Thank you. I'm sure those questions can be put on notice.