Ep 11 - Contractors vs Employees

The most frequently asked questions in any Australian Dance Studio Owner forum is "Should my staff be contractors or employees?" 

Join Bec and Nathan today as they outline their thoughts on the matter and share some tools and resources that you can access to help you decide the definitive answer to this question.

In this episode, you will learn: 

• Which category our regular weekly teachers should fall in to.
• Tips on how to make the transition from Contractors to Employees
• Which Award rate our teachers and Admin Staff are covered by.
• How to use that award as a pay guide.

 Show Notes:

Resources and Links Discussed in the Podcast: 

• ATO 'Employee or Contractor Tool'
• ATO Should I be Paying Superannuation Tool
• Fitness Industry Award
• Fitness Industry Award Pay Guide

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Show Transcription: 

Rebecca Liu-Brennan
Hello, everyone, and welcome to our dance principles United podcast. I hope you are all amazing. We have the incredible Nathan Barr with us today. And we're going to be talking about something that's been a pretty hot topic on our page this week. How are you going, Nathan? Hey, Beck,

Nathan Barr
how you doing? Yes. No, it been another, another fantastic week. What are we like week three in our studios. Now? We got the first week off with a little isolation period that we had to do. But um, yeah, back and hit the ground running and everything's into full swing. Lots of people around the studio and really good balls.

Rebecca Liu-Brennan
Yeah, awesome. I've having my ISO period this week. So luckily, we have great teams, and our studios can keep going through that time. But it's definitely negotiating all things. COVID At the moment, that's making life a little bit interesting. But we're getting there. That's for sure. So tell me about today's topic. Nathan, you're a pretty big expert in this. And I'm super excited for us to talk to everyone about it today.

Nathan Barr
Yeah, absolutely. And it's always a topic that we see on like all the all the Facebook groups and everything like that. The employee verse contractors, and then superannuation for contractors topic, it's always something that always gets massive engagement. And whichever forum you see it in, and it's something that look for industry. A lot of years ago, it used to be a little bit of a gray area. But we have lots of conversations around this now. And nowadays, it's pretty much black and white, that within our businesses, our dance studios, that the people that we're engaging to come and teach our weekly classes need to be employees that they're not defined as contractors anymore under sort of any sort of Australian laws or regulations.

Rebecca Liu-Brennan
Yeah, exactly. And I think, you know, people will come back and say, various things, such as well, what if they've got their own business, and they're registered for GST? And that still, they still need to be an employee? Right?

Nathan Barr
Yeah, absolutely. And like, there's a really clear tool that if, if you go to the show notes at the bottom of the podcast here, I'm going to pop in there on the Australian Tax Office website, it's a really clear, clearly defined tool, you answer a few questions. And every which way you do it for any scenario that I could possibly put in for dance studios? The answer is always. They are employees, not contractors. And that that comes with a whole bunch of it's obviously a big transition. And if it's, if you're paying as contractors at the moment, you're definitely not alone. Because we know that a lot of people in the industry are, but it's something that you need to look at transitioning and taking everybody that's working for you to employees, not contractors.

Rebecca Liu-Brennan
Yeah, definitely. I think I've spoken to barristers, lawyers, everyone about these. And I think, you know, when, when I spoke to a barrister, the thing that he told me that really resonated was, if you got a plumber into your house, they would do their plumbing job as a one off thing, or maybe come back a couple of times, and that'd be it. Whereas if you've got someone who's booked in for a schedule, every single week, at the same time, which we know our teachers have got, they're seen as an employee. So that was a really obvious way to look at it for me, and for me to talk to my staff about it in that sense. And if they booked in for that scheduled time, then they should be an employee. But there's lots of different reasons of why their employees were providing most of the tools. So if you're inaccurate teacher, for example, I'm sure you're not bringing your own crash mats. And, you know, or they're not bringing their own crash mats and big long run outs and all of that. So we're providing those tools for them within the school. And there's lots of other things as well right now.

Nathan Barr
Yeah, absolutely. And that's one of the questions that when you go, if you go through that tool on the Australian Tax Office website, it talks exactly about that. One of the things is, yeah, we're providing everything for them to conduct their job. And so that's why they need to be employees of our businesses. And it's one of those things. Yeah, we talk a lot about it. It's something that, you know, when you make the transition, there's a lot of training that needs to happen for our staff, and we need to coach them about it, because a lot of them just don't understand the nuts and bolts of you know, nobody really understands the tax law, do they, but like the nuts and bolts of how the world works, and things like taxes, and superannuation, which we'll get to in a little bit as well. But it's a big discussion when you transition your staff over.

Rebecca Liu-Brennan
Yeah, definitely. And I think the biggest issue that you have is that they feel like they're getting a pay cut. And then they're not because we're still paying them the exact same amount. We're just putting some of their money into superannuation and some of their money into tax. So we're still paying the same amount, but they don't see it that way. And it's educating them on that. So one of the things that I talk to my staff about is the fact that they are going to have a lot easier ways if they need to get a loan or if they you know what Apply for something, it's much better for them to be an employee in that sense. I also tell them that they should have been paying that superannuation, which they probably weren't. But you know, they should have been paying that in the past. And so that's also helpful for them. What other things?

Nathan Barr
Yeah, and explaining it in terms of like, you know, when I was paying you $60 An hour as a contractor, then what you should have been doing is putting aside, let's just say, $10, for your tax, you should have been putting aside $6 for your superannuation. So theoretically, you should have only been taking net 30, or whatever it was $44 a week. And that would help you, if you haven't been doing that, then you haven't been meeting all your obligations. And that's what you know, the tax office will sort of, you know, is looking at at the end of every year. And it's, you know, we know that a lot of our contractors just weren't doing that. And that they're taking that $50 and thinking, whew, this is all mine. And away they go, and I'm sure I would have when I was 21, and doing those sorts of things as well. But yeah, it's just really important that they understand that that, you know, we are still outlaying $60 an hour for them to come and do the work. And they're just a great way that a HR company explained that to me, the last time I spoke to them, was that when they're on when they come on as employers, they actually get so many more protections as well. Not only are we taking care of all those financial obligations, like the tax and the super, and things like that, they have just got so many more protections in terms of if they hurt themselves at work, insurance claims, everything like that. Yeah, things like unfair dismissal and everything like that. They're just, they have so many more benefits that they don't realize a lot of the time than they do as independent contractors.

Rebecca Liu-Brennan
Yeah, totally. And I think as well, like, if they become a part time or full time employee, then if they're sick, they they get paid for that time, you know, they get paid for holidays. That's things that dance teachers just aren't used to. And that's that's really a game changer as well, sometimes.

Nathan Barr
Yeah, absolutely loves it. Like we like okay, I keep going back to but we know that it's a tough transition, right? And that it's Sunday, he cancelled just snap your fingers and bring up all your stuff after listen to this podcast and say, right, everybody, tomorrow, we're all employees like it's a transition, right? But it's something that you sort of like we're in what are we fed now. It's something that if it's you should be looking to what the first of July, the new financial year is always a really good time, if you're going to be making these changes, that gives you a little bit of a runway to start preparing your staff to start onboarding them. And to look at that,

Rebecca Liu-Brennan
and make sure that you're talking to your accountant about this and asking their opinion, make sure you're talking to your lawyers about this and asking their opinions. Because you know, it's important for you guys to look at that stuff as well and to talk to those experts. But it's definitely the way that we need to go.

Nathan Barr
Yeah, absolutely. And like we've, we've helped some of our private clients transition to this. We know we've helped a lot of our tribe members transition through this change. And it's something that we always good because we all have staff that teach at multiple locations. And what do you say back when the staff member comes to you and says, Well, three other places I'm working at? Let me be a contractor. So why can't you?

Rebecca Liu-Brennan
Yeah, look, I have to say to them, unfortunately, they should be seeing you as an employee. And that's just the way that my business works. And that's, that's how it is here, the end like I don't, and I think that's getting back to your non negotiables Isn't it like you really need to be aware of what your non negotiables are. And if that teacher is not willing to see in with those non negotiables within your business, then you need to be willing to let them go. I talk about this a lot with clients as well, you know, like, you can't change the way you're doing things than change the laws essentially, for that one person, you've got to be really strong in your own self for your own business. And you know, this can have a lot of backlash if it gets into the wrong hands. And people will find out that you're not doing the right things legally, it can have a lot of backlash.

Nathan Barr
Yeah. And you could be up for you know, you could be up for a lot of money in some circumstances as well. Like, it's something that, you know, just because others aren't doing it like you need to take take that on as like, as a leader in the industry. And it's something that yeah, like big said could potentially come come back to hurt you financially in the long run. If it's not something you look look at transitioning to.

Rebecca Liu-Brennan
Yeah, absolutely. Absolutely. Um, so another thing that's come up a lot is rates of pay, and you know how much we're expected to pay people and it's such a topic in all of the pages. And so I know Nathan that you want to talk about the fitness industry award.

Nathan Barr
We always say again, like we said, it's always something that comes up in every group that we're in people wondering like what do you use that as a base like what do you use to to decide what you're going to pay your staff members and we come under what's called the fitness industry award. So if you go into like fit work and things like that. And you just Oh, you just Google Fitness Industry Award, then yeah, it's a, you know, what, 7080 Page legal document. So you're not going to go through and read it cover to cover are you but the key things you need to take out of it are the levels of your employees. And so the fitness industry award defines right down the bottom, it's called sheduled. A, it defines your employees as a level one, up to a level seven, obviously, level one is where we start our junior system teachers and things like that, up to a level seven, which is our sort of top tier employees, those that have got their RA D certificates and or cert fours in density and management, those that have had that have got the, I guess the formal skills and qualifications that that apply to our, our downstaging. And our industry.

Rebecca Liu-Brennan
Yeah, totally. It's interesting to look at these numbers like the level seven, what's the highest, right? Yeah, yeah,

Nathan Barr
like, people, I hope people are sitting down and they don't fall off their chairs. But based on the fitness industry award, the very sorry, the level seven employees, the award rates are the lowest you can legally pay them is $35.08.

Rebecca Liu-Brennan
Yeah. And that's obviously, as you said, like, it's not realistic in our industry. And we know that, but it's just interesting. I was saying before, my bookkeeper is very passionate about this, and she has not had anything to do with dance until she started working for me. And she can't believe the hourly rates that you know, really young people get into. She just says like, do they realize that this is the same hourly rate as like a brain surgeon would get like, she just can't fathom it. But it's just normal in our industry, I guess. But as we keep saying, it's educating people around that, and, you know, realizing whether that person is really that valuable to your business or not. And people can have different values within a business. And you've got to look at that financially. Exactly. And

Nathan Barr
that's what yeah, the award is just a jumping off point. Yeah, that's where, you know, if somebody comes to you, and you know, for their age, and their relevant qualifications, their award rate is $31. Now, by all means, you can pay them $60 an hour if you feel like because it is a job market, right? Like, they're bringing skills qualifications to the table, and we can decide whether we, whether we want to take that on or not. But just know that like, yeah, it should, you don't have to feel pressured into those higher rates, if you as your business can afford it. And I know for like, for me, as a business owner, you know, I know our numbers inside out. So when even a really high level teacher that we if we've advertised and a really amazing, incredible teacher comes to us. And we offer them a rate that we know we can afford. And they say, oh, no, my rate is $30 an hour more than that. I respect that. And because that's, if that's what they can get in the market, like all power to them. But I know for me as a business, that's not viable. And I need to be a profitable business, to be able to do what I need to do.

Rebecca Liu-Brennan
Yeah, totally agree. And I think like, you've just got to make sure you know your numbers and know what you can afford. And like I said, just be aware of whether they're really that big of a asset to the business or whether they're not essentially and pay what you think they are worth definitely. Sorry, you know, I was gonna say, but also educate them about, you know, the fact that you're the one doing the advertising, you're the one paying for the premises, you're the one that's, you know, getting your admin team to bring those students into their class like that. That's where you really need to teach them that you are a business and there's all these overheads in your business. And they're coming in as an employee to your business. And that's where I think we really forget to tell our teachers and tell our staff about that stuff.

Nathan Barr
Yeah, it's not them organizing their own workshop or anything like that, where they've got to do all the legwork, they've got to do all the admin, and then turn up and teach as well. And it's also like, you know, we've, like we've all done it, like we've all negotiated with high level teachers. And you know, a lot of the time like, if they're just coming down for like, a three hour block one night a week, we're prepared to offer them a higher rate than if we're giving them two full nights of teaching. I think that's like, yeah, just because they've got teachers should never I don't I don't feel have one set right across the board for everything. Because yeah, like two full nights of work is a different it's a very different proposition to them, maybe having to criss cross the city for three hours one afternoon.

Rebecca Liu-Brennan
Yeah, definitely. I totally agree with that. I also think that when I do employ those higher rate teachers, there's expectations that they are expected to help me grow those classes to keep those numbers in those classes. And, you know, if there's someone who's got a huge social media following, which usually those high end teachers have, then I want them posting my school on their social media, and I'm very transparent about that. And you know, there's this that expectation in there because they will get people to come to their classes because of who they are. And that's essentially what you're paying for. So I don't see any issues with expecting that from them as

Nathan Barr
well. Yeah, absolutely. But like I said, I'll definitely put the links for the fitness industry awards. So you can check all those classifications, and read through it yourself and decide where you think those teachers, your current teachers fit in. What I always say a lot of questions, I think, sometimes, like the perfectionist side of dance teachers, or dance studio owners, look for that really black and white answer. And the more and more I learn about HR is that you're not going to see that black and white, okay, as long as you're, as long as you as the studio owner and the business owner, are being as honest to that front as you can, you're not going to make a massive, massive error in where you're placing a teacher like it, the awards really good. And you can sort of see, okay, based on what this teacher is doing, they are a level four, or based on the cert four, they've got a look that puts them into a level six, or whatever that is. So and that's one of the thing like, yeah, if you're worried about it, then go and talk to a solicitor or something like that, and they'll be able to help you or HR company, they'll be able to help guide you along that. But yeah, for us, and you're probably the same back, we start our junior assistants, we pay all of our junior assistants, and we start them on the level one award rate for their age. We don't We never go above that. Because we like to be able to reward them if they're amazing and do a really good job. We used to like years and years ago, we used to start them above. And then you get that tricky situation where the person you thought the 16 year old you put on thinking that'd be fantastic. turned out not to be so good. And you can't undo that. Yeah,

Rebecca Liu-Brennan
we do the exact same. I think I was gonna say like something that comes back to me often is for a personal trainer gets, you know, 60 or $70. And again, like I always go back to those staff and say yes, but they're the ones doing their advertising. They're the ones actively seeking those clients. They're the ones who are booking those clients in. We're doing all of that for you. So I think explaining it to them in that sense definitely helps. We wanted to talk a little bit about people asking for huge pay rises as well. Because it's always something that comes up where they want, you know, a big pay rise, because they've heard the person next to them is getting that amount.

Nathan Barr
Absolutely. And like with all of this, like I think, don't get me wrong, like I've been in that situation before, like you hear them do it and like, have debt like What do you mean? Like, how dare they, I'm grateful for what I've got like, and you go on with anger, you think like, how dare they like, basically, what a little shit? How dare they ask for that? Rather than stopping and thinking, Okay, hang on. I'm a business owner with 20 plus years experience. I know how the system works, like, all they see is like, yeah, they hear they've heard a three minute story about some ridiculous hourly rate, somebody's got like, it's okay for them not to understand and come with a little bit of a silly, silly question. But it's our job to sit down and educate them about it and what that means.

Rebecca Liu-Brennan
Yeah, definitely it I was gonna tell this story about my singing teacher who wanted $15 An hour extra. It's there at 50. And they wanted to go up to 65 an hour

Nathan Barr
for the 40 40% increase or something

Rebecca Liu-Brennan
which would never have any, any industry other than ours, right. So they're doing 18 hours a week. So they wanted a $270 per week, pay rise, which is what I this is how I explained it. I think when they look at it, they think $15 An hour isn't that much. But then when you say well, that's $270 per week, which ends up being $2,700 per term, which ends up being $10,800 a year, that's when it starts to get real. And when I explained it to this person like that, it definitely made more sense to them. And I think that's you know, you've got to look at it from a different perspective sometimes that they don't understand that side of it either. And the other thing that they said was, well, this is what people who've got my qualifications are getting, and I said yeah, if they're teaching singing at home, in their house, again, where they're doing all of the legwork for that. Whereas we're literally bringing these students to you on a silver platter, and we're doing all the advertising and everything else. So I think explaining it in that sense can really help them as well. But exactly what you said night they just don't get it and I didn't get it when I was younger, exactly when I was when I was teaching at schools, you know, there'd be 30 people in the class and back in the day, because I'm old, it would be $10 a student, you know, and I, I'd be charging $40 for the hour. And I'd be like, Oh, she's making $300 on this class. Thank you 14 of me. But then you don't think of all the overheads you don't realize that until you actually are in a business of how much overhead there is. And she's probably not making any money off that class when you really look into the nitty gritty of

Nathan Barr
Absolutely. That's why I like knowing your numbers is so important. And something that I work on with with our private clients helps take the emotion out of those discussions as well. Like I always tell the story as well about one of our amazing teachers a few years ago who was only about 18 at the time. So, you know, the award rate was you know about Yeah, $4.07...haha not quite, but Yeah, a very low award rate for an 18. year old casual on level four is like, I think it's less than $20 an hour. But when I go through, because I literally calculate every single class how much every single class is costing us based on our fixed costs and our teacher wages, and then break down exactly how much each class brings in revenue every single week. So I know, which are my most profitable classes. And we all know in dance studios, that we have classes that run at a loss, and that's okay, too. Like, it just happens. But this teacher, who was only 18, didn't have the qualifications of a lot of our staff. Every single one of her rec classes was bursting at the same. She was obviously doing something incredible that made the kids go home and tell, you know, tell their friends, oh, you should come to this class. It's great, like, and so if she, when she comes and ask for a pay rise, I can sit there and look and say, Ah, you're teaching eight out of my 10 most profitable classes. Yes, you can like, just because like, I don't think we have to say just because of their age, or just because of their qualifications, that they should have this or that, I think it can be a case by case basis. And that's where doing things like knowing your numbers can be really valuable.

Bec Liu-Brennan
Yeah, definitely. And I think, explaining to them as well that they need to come to you at an appropriate time for this, you know, my teacher came to me three days before we started back, we'd already budgeted, there was no way that that was going to happen. I explained that to her. And I think, you know, explaining to them that side of things like if you do feel that you deserve a pay increase, then come to us at a reasonable time, give us reasonable time to work it out. And actually tell us why you think you deserve it. And, you know, there's so much that needs to go into it from them as well. But it is just all about education. And it's educating not just you guys, but educating your staff as well. That this is, you know, the way that you need to move forward with things essentially,

Nathan Barr
yeah, I think that can be that's a really good one about like, educating them about what a pain negotiation looks like. It's about them coming in presenting a case as to why they feel like they deserve a pay rise, not just another 12 months down the track. Gimme, gimme, gimme. Like, that's not how any job works. Like, that's not Yeah, you know, people that have their year, like annual reviews, like people in the private sector, they have their annual reviews, and based on performance, then they discuss whether they're having a pay increase or not. So like, if, like I said, like, it's just something you've got to go into, you got to take the emotion out of you've got to go into trying to educate, and train and help our employees alongside, okay, like, you've kind of been asking for a pay rise, let's put a pin in this because I want you to go away and come back. And let's make this time next week. And I need you to tell me why you deserve the pay rise, like what's happened in the last 12 months that you think justifies your pay rise? And I'd love to listen to do you put that case to me?

Rebecca Liu-Brennan
Exactly. And it's harder to sit at ease, try not to be fearful that they're then going to leave and so feel the need to actually bow down to them. Because that's the other thing that I think our industry has is it's like, well, if I don't pay them that and then they leave, I'm not going to be able to find another teacher, and then you know, things are going to go pear shaped. And that's when we make decisions that aren't best for our business. And there are lots of teachers around and you will find the right type of teachers for your school. And you've got to put your business hat hat on first. I feel in that case,

Nathan Barr
absolutely. I mostly like like we'd like I said at the start like it is a job market like that somebody can come in and ask for $750 now from us not a problem at all. Like if they want to ask, I'm gonna say no. And they're gonna go out to the rest of the market offering $750. And I use that example because it's ridiculous and far out, obviously. But like, it's okay to say no, if they can go and test the market elsewhere and get that or power to them. But I think we know we're seeing as an industry that these really, really high hourly rates aren't sustainable.

Rebecca Liu-Brennan
Yeah, definitely. But I also have to say some people are worth the crazy amount. I had some teachers last year that I was paying really huge amount before but they were really exceptional staff members on every sense. They were sharing on socials, they were proactive in you know, promoting my company. They weren't really great employees on every level. And so you can look at that as well and say that, you know, sometimes they are worth it. So it's really up to you guys. At the end of the day. You got to just work that stuff out yourself.

Nathan Barr
Know your numbers and know their value. Yeah, for sure. Amazing.

Rebecca Liu-Brennan
Awesome. I hope you guys have enjoyed that session. Always reach out to us if you have any questions. We're always keen to answer any questions, especially on the day it's principles United page. It's a great page where lots of these discussions happen. So if you're not on there, make sure you get on there and reach out to us so that we can help you with anything and everything

Nathan Barr
perfect and if you have enjoyed the pod We'd really really appreciate you hitting the follow or subscribe button wherever you're listening

Rebecca Liu-Brennan
thanks so much guys! awesome thanks everyone bye