Pass the Red Tape

I’m running a business and employ a few people. I use spreadsheets to manage the finances and came to the conclusion that I needed to buy accounting software of some sort, if I am to have any chance of expanding. I bought a license to Quick Books Online which is $250 a year, and although it looks like it would be really good software when it’s configured, getting there has been an uphill battle. My issue isn’t with the software though, it’s with the poorly communicated legislation surrounding employment which gets me, and the lack of business level standards. I don’t want to under-allocate or over-allocate the amount of money I need to keep aside for employee entitlements. Under-allocation means I could be in for a nasty surprise, over-allocation means I was unnecessarily saving funds which could have been used for additional cash-flow and growth.

I’ve looked on both the Victorian Business and FairWork website, which explains the various rules surrounding Annual Leave, Personal Leave {Which contains a couple of subsets of leave}, Public Holidays, Jury Duty and Super. For starters, I couldn’t find a mention on any of the websites about Super. I only heard that it was 9% and I think a UK tax website mentioned that the Australian Super rate was 9% (something obscure like that). So what’s with that?

All of the leave descriptions are quite easy to understand, from an HR point of view. But when it comes to accounting, you have to deal with a mix of variables in weeks and days. For example an employee is entitled to a min. of 4 weeks of annual leave over 12 months worked. What does a week mean? Does that mean a working week – like 35hours for a person who works 7 hours a day, 5 days a week? Or do they mean 7 days? I have assumed the 35 hours. With an unspoken rule like that, we now can convert “weeks” into a common measurement: “hours”.

In QuickBooks you can input the amount of Annual Leave to credit an employee a fraction of an hour for every hour they work. Now if you use this method, how do you determine this fraction, when ordinary hours may be less in one year because they have claimed Annual Leave as time off? This is just one of the underlying complexities of this system. So what fraction should go in there? I’ve seen a few different figures in forums and those posts are from 2004. If QuickBooks is sold as an Australian product shouldn’t the vendors have a yearly standard posted on their website for such figures? Well yes, they should, but they shouldn’t be the ones to digest government information into concrete standards, the government should do that.

One final point worth exploring is the amount of money a business should set aside for an employee’s entitlements. Leave is measured in hours and is paid at the rate of pay, at the time it’s claimed. So what % of interest should be place on an employees “leave account”? What is the relationship between a payrise percentage ? What is the probability of an employee taking bereavement leave? How much should be set aside per employee? How much can this discounted as more employees are employed (due to progression toward an internal insurance like system)?

I believe that these Government websites should go further in clarifying issues such as this. For starters,

  • the Annual Leave entitlements should simply be defined as a relationship to an hour worked, not a year worked, then pro-rated. For every hour of hard work an employee puts in, they should then be entitled to a percentage of hours in time off – simple as that!

Failing that,  they should include simple dot point rules for an accounting system. It would look something like this:

  • A full time employee must be awarded (Regardless of whether they are full or part-time)
    • X% of an hour for every hour of work they perform for annual leave
      • This account can be in debt by up to 2 weeks, before unpaid leave can be forced
    • X% of an hour for every hour of work they perform for personal leave
      • This account can be in debt by up to 5 days, before unpaid leave can be forced
    • X% of an hour for every hour of work they perform for public holidays
      • An employee must be able to take every public holiday paid, regardless of account balance
  • The amount of money (M) set aside for leave should be equal to or greater than:
    • All of Leave = L
    • Current Wage Rate = W
    • Estimated Wage Increase Rate = I  (by default is X%)
    • M = L * W
    • On each anniversary of employment: M = M + (M * I)
  • OR {Alternative accounting strategies….}
  • All of the different X% come from: {Flow diagrams and formulas}

Such a well structured specification could be used across Australia, and deliver much better efficiency in the economy. Not to mention the savings, stopping every vendor and business person from having to “re-interpret” the HR rules over and over again – getting different results.