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No Profit Penalty from Abolishing Penalty Rates

6 May 2015

The recent deal brokered by South Australia’s shop assistant union and the South Australia Chamber of Commerce to slash penalty rates has been met with praise from small business owners and union representatives, yet Dr Tom Smith, Lecturer of Finance at UQ Business School says the hype surrounding the historic change is misplaced.

In exchange for no penalty rates, employees have the right to refuse weekend work and a three per cent increase in base wage that will equate to an extra $60 per week.

“It doesn’t really make sense to get rid of penalty rates if employees are getting an extra sixty dollars each week,” Dr Smith said.

“Small businesses think twice if they have to pay their employees double time on Sundays.

“But the agreement is likely to be a wash if the employees are getting paid a total amount that ends up being pretty much the same.”

Dr Smith says that employers may be the ones who lose out in this iconic deal.

“One of the difficulties from the employer’s point of view is that their employees may be working Monday to Friday and getting their extra sixty dollars, the employee may continue to enjoy working weekdays with that added incentive,” Dr Smith said.

“If the employee refuses work on the weekend, the employer will have to employ more staff that may not be as well trained to take up that weekend work.

“For example, a barista in a café is very important. You go to a café because of its fantastic coffee.

“The person making the coffee may be working Monday to Friday if they have that extra $60, they may not work on Saturday and Sunday where a second or third choice employee would be making coffee, affecting the business’s reputation and profitability.”

This deal has not been well received by everyone. Critics claim the deal will negatively impact rural areas as the lost disposable income will result in less cash flow into the small economy.

“There is an argument that removing penalty rates will be bad for rural areas due to the loss of disposable income,” Dr Smith said.

“I think the extra sixty dollars the employee gets during the week will make up for the money lost on the weekend.

“People who work in rural areas will end up with a similar disposable income.”

Dr Smith says that overall, abolishing penalty rates will not impact profits of the industries that offered them.

“If you look at the figures, retail and hospitality industries that use the penalty rates are growing,” Dr Smith said.

“When cafes aren’t open on the weekend, people say it’s because of the penalty rates.

“That might not be the reason at all. It might be because they’re in the city and fewer people are in the city on the weekend and it’s not worth their while anyway.”

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