Looking anew at the question of penalty rates

In the world of workplace relations, one area where most small business owners have continuing concern is around penalty rates. 

The penalty rate for a Sunday is now double time and for public holidays is between two-and-a-half times and three times the normal rate. It used to be time-and-a-half in most jurisdictions.

The high rates on Sundays and public holidays are changing the nature of communities, costing the jobs of people who can only work on weekends and forcing business closure on those days.

The problem is a simple one of profit. If income and net profit from sales do not at least match costs, then a loss is made.

Here is an example of the difference for businesses that open on weekends, based on the hospitality industry. Say, for example, that normal time is $16.85 for permanents. Time-and-a-half then becomes $25.26, double time is $33.70 and triple time is $50.55.

If a business employs four employees and opens from 10.00am to 5.00pm with an hour break for lunch for employees, then its net profit would have to increase by $200 on Sundays and almost $600 on a public holiday to cover these increased costs. (I have based the increase from time and a half, not from normal time rates).

To recover this increase in costs, sales may need to rise by between 25 per cent and 50 per cent or more. This might mean increasing the sales of beverages from 100 to 150 drinks, or increasing the number of customers in the business from 20 to 30 per hour. That is a big increase and the risk of having a high loss on a Sunday or public holiday when there is rain or just a quiet day increases too.

A wise small business owner will not open his doors unless there can be a guaranteed increase in sales to match the increase in costs.

A wise small business owner will not open his doors unless there can be a guaranteed increase in sales to match the increase in costs.

Making a loss on Sundays and public holidays is not a good thing for a small business – and that is why many retailers, restaurants, coffee shops and the like close on those days.

The people that are also affected by these penalty rates are those who used to work on these days. This includes school pupils, university students and women and men who care for their family during the week and seek an opportunity to earn their own income on weekends.

High penalty rates have also prompted many country towns to close down on weekends and has affected the culture of those communities.

Penalty rates have their place. If an employee has to work long hours, then they should be compensated. But a community where a pharmacy has to close on Sundays is not healthy.

A community where young people don’t get to earn extra money and learn about working life in weekend jobs is one where a complete education is not available to the next generation. A community where clubs and restaurants have to close on Sundays and do not open past 9pm at night due to penalty rates is missing out.

Who decided that someone is better off sitting at home on a Sunday doing nothing and not working and earning $25.26 an hour? It represents paternalism that is not needed and is not welcome.

These decision makers have also created an ethical problem for many employers. If an employee offers to work for time-and-a-half, then the employer needs to make a decision: Should I give that person a job, support the community and risk being fined, or follow the rules? What would you do?

Another argument against dropping penalty rates back to a reasonable amount is that it is the “thin end of the wedge” and that before we know it we employers will be wanting to pay miserable wages and impose poor conditions.

That is rubbish. The penalty rate issue is about businesses opening on weekends and people working in those businesses. Unless those paternalistic decision makers have other plans – are they proposing to increase penalty rates to triple time and quadruple times normal rates?

Peter Strong is the executive director of the Council of Small Business of Australia.

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