3 (employment) things you need to know before selecting your company structure

In your business’s lifetime, there may come a point you think about changing your business structure. If you’re thinking of becoming a Pty Ltd entity, or making any change that changes which systems of industrial relations apply to your business, there are some things to considering at the planning stage

1) There are two industrial relations systems that apply in Australia

  • The national system – managed by the Fair Work Ombudsman – covers Proprietary Limited companies – that is, Pty Ltd entities that haven’t offered shares to the general public
  • The state system – in WA managed by the Department of Mines, Industry Regulation and Safety – which applies to businesses set up as a sole trader, or an unincorporated partnership or unincorporated trust

Case study 1
A client contacted us as their business is growing. We were able to advise them about the correct system to apply – highlighting that some staff are currently being paid above award. The business can use this information to think about how they pay and incentivise their team going forward.

2) You don’t have a choice of which industrial relations system applies – it is determined by your business structure

No amount of creativeness will help in this matter as one of the systems will always apply.

3) These different systems mean there may be different pay levels, leave entitlements and other employer obligations – depending on which applies

If you follow the wrong system you may end up overpaying or underpaying your staff. Either way, it could cost you money – either through the inadvertent overpayment, or when you have to fix any underpayment, as well as any backpay. Not to mention the management and admin time it will take to sort it out.

Case study 2
We were asked to review a business’s employment contracts as they were changing to a Pty Ltd structure. We were able to advise them that this change would mean their staff – who were award-free in the WA system – would now be covered by a modern award (national) becoming eligible for additional payments and entitlements. They had been advised on the tax and other financial implications – but not the employment considerations. This information meant they were fully informed as they planned the next stage in their business’s growth.

In each of the case studies above, the common issue is the effect of being covered by a different industrial relations (IR) system and the impact this has on terms and conditions of employment for staff – and the business.

Even with a Trust arrangement in place, the question may still be relevant where the ultimate entity for the Trust is a Pty Ltd arrangement. Both industrial regulators will be effectively asking – what is the structure of the entity that is providing the money for the payment of wages?

You can probably already see that getting this wrong means you’re either paying under or over what you need to or exposing the business to claims of unfair dismissal and backpay. None of which is good for your business’s bottom line.

If you are one of the number of WA businesses considering a move to becoming a Pty Ltd entity, or are just not sure, take some time to consider the IR system that either of these scenarios will bring and seek further advice. Be sure to ask your business advisor specifically about the possible implications of moving from one system to another so you are fully informed as you plan any changes.

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