How rising penalty rates are reviving the cash economy: Gottliebsen

If you have not already noticed it, you will soon see cafes, restaurants and other small enterprises preferring cash payments at weekends. They simply can’t afford to stay open and pay the new penalty rates so they are starting to pay staff in cash in a desperate bid to keep their businesses alive.

I was alerted to this by a restaurateur and I also discovered that researchers are starting to see signs that there is a lift in the cash economy. There is no surprise that smaller enterprises are returning to paying more staffing cash because it’s what they did in previous decades when Australian industrial relations were also heavily regulated.

There is no doubt that a large number of small enterprises simply can’t afford to pay the weekend penalty rates that have been imposed on them and if they can’t manage the business themselves are facing closure. Others simply don’t have the systems to cope with unfair dismissals.

But I must warn all small enterprises that are moving into a weekend cash economy that it is much more dangerous than it was in previous decades. There is a vast difference between 2010 and the 1990s and 1980s. In those times the only real risk the employer faced was the Australian Tax Office. The tax office simply did not have the firepower to take on hundreds of thousands of small enterprises. From time to time the tax man threatened to find people’s cash but it was an empty threat.

In 2010 we have Fair Work Australia, which is now starting to exercise enormous muscle. My guess is that in the next budget it will receive a big new injection of funds. If a small enterprise pays a person cash instead of an award payment with weekend penalty rates and they have a dispute with that ’employer’ then the ’employee’ has a toll-free number at Fair Work Australia to call. The employees don’t have to leave their name, they just ‘dob’ in the café owner and once Fair Work Australia looks at the revenue books carefully, it is not hard to see that a particular level of revenue cannot be achieved by the owners alone. Staff will be quizzed.

Those operating in the cash economy usually used two base employee paying strategies – the employee is paid a minimum figure and the rest topped up with cash. Alternatively it is all cash.

We now have far more labour regulations than we had a decade ago and the ‘all cash’ system means that there are no insurance covers, while the part cash system is very easy to isolate by investigators. More sophisticated enterprises can use independent contracting but that requires very different arrangements to the conventional employer/employee system. Many accountants do not understand how it works and the government is looking to attack it.

Fair Work Australia does not seem to have launched a full scale drive on the cash economy, but come 2011 – when all the award arrangements are fully operational – it will be high on their agenda. Last month, they processed about 150 cases many about unfair dismissal. The employees are not winning every case but there are a lot of re-instatement orders which petrifies small business because they simply cannot cope with the tensions when a sacked worker gains re-employment. They have to pay him out.

Once Fair Work Australia really starts to hit small businesses who have not paid penalty rates or have been dobbed in for paying cash there will be great suffering in the small business community. The barbecue/sporting-event intelligence network will spread the word.

An enormous amount of labour is employed by small enterprises. Once they discover that the cash economy is too risky they will close and we will see considerable rises in low-skilled unemployment.

This article first appeared on Business Spectator.