Rising wages leave a sour taste for family business

The latest lift to the minimum wage is another blow to family businesses already struggling with high penalty rates. And it's family members who will have to pick up the slack.

The Fair Work Commission’s decision earlier this month to grant an $18.70-a-week pay rise, pitched half-way between the ACTU’s claim for a $27-a-week increase and employers who wanted the rise kept at $8.50 a week is set to hit family businesses hard, and comes as unions and business prepare to do battle over penalty rates.

Alister Haigh, chief executive of Haigh’s Chocolate, a business begun by Alister’s great grandfather Alfred, says the wage decision comes at a bad time for the business.

“We are in the middle of negotiating two enterprise agreements at the moment so it’s very unhelpful," Haigh says. “We have come through a pretty tough year and the way consumer confidence is going at the moment, it doesn’t look like it’s going to get much better this year.”

He says the decision makes it harder for the firm to expand.

“Expansion is a long-term strategy and you don’t make it with one decision," he says. “With us being fairly labour intensive, in retail and manufacturing, you look to reduce those costs.”

“It’s not just that one decision. You wonder what are they going to do next year and the year after if they are not paying attention to where the economy is at the moment by awarding increases like that.”

Penalty rates only make the problem worse. Haigh says penalty rates were manageable until the Fair Work Act came in, sending all the penalty rates up to national employment standards that he claims stretched the company’s finances.

He says the penalty regime stops the company from running its stores at full capacity.

“It’s two out of seven days, and they are not our busiest days so you couldn’t say it represents 30 per cent of our costs because the majority of our business and work is still Monday to Friday, but it makes trading on weekends more marginal," he says.

“If it looks like it’s unviable, then we just won’t open and the causals won’t get any work.

“When it’s not viable, on public holidays and through the summer months we won’t bother opening because of the costs.”

Like so many retailers and manufacturers, Haigh is feeling the impact of competition from overseas. The penalty regime, he says, makes it harder to compete because overseas competitors don’t have to deal with it.

“We have to look at the world market, not just what’s happening here. We are at the top end of market so we get a lot of Swiss, Belgian, French and to a lesser degree German products competing with us.

“There are always products from overseas that can come here and we have to look at where our funds are best invested.”

He says he would welcome a government inquiry into penalty rates and the industrial relations system, one right up there with the inquiry now probing Australia’s tax regime. Still, he’s not holding his breath.

“They (the Coalition) made that announcement before the election but then they made other announcements that they’ve tended to ignore," he says.

Dominic Pelligana, a partner in the Private Enterprise team at KPMG, says the Fair Work Commission ruling means family businesses, particularly mid-sized ones, will have to rely more on family members.

“They have the luxury of leaning on families to work a bit harder," Pelligana says.

“We all know that first generation family businesses, the family is there to serve a business. It might mean the family has to work a bit harder or work longer hours. It’s another cost mounting of how expensive it is to do business in Australia with taxes, increased labour rates and the dollar not going anywhere.”