Why cash is king in the new employment landscape

One of the fastest growing parts of the Australian economy is a new way of employing labour. It is most widespread among the young and the old.

Young people who do not understand the new rules have little chance of employment in many lesser-skilled areas.

While what is happening breaks the letter of the law, it is a direct result of politicians passing rules that make no sense to ordinary people. So the ‘offenders’ ignore government and get on with their lives.

When next you visit a smaller café, there is a very good chance that the workers and owners of that café have established their own set of employment rules. The actual rules vary greatly between businesses, but one widespread agreement is to have a uniform hourly rate with no shift allowances or penalties that is topped up with a bit of cash.

Others simply never register for Sunday work, even though it is the busiest day of the week. The essence of all these arrangements is to avoid, or greatly reduce, weekend and public holiday peak penalty rates, which make conducting the business uneconomic. The arrangements usually embrace taxable income and cash.

Such arrangements have been made necessary by bad legislation -- a bit like prohibition in the US -- and cover a wide array of smaller operations. My guess is that half to three quarters of cafes are involved, and it extends into parts of the home building trades, but I emphasise these conclusions are from anecdotal evidence.

But if you have a son or daughter who wants to work for a small café, a building contractor or similar operation, explain to them that what the business owner will be looking for is first an ability do the job. But, in lesser-skilled tasks this is of less importance to the second requirement -- ‘can we trust this new person to work flexibly with the group under the group rules’.

And remember there will normally be less than 10 people working in the business. Remember, big companies are shedding labour. Most private-sector employment is in small enterprises.

These days there are normally hundreds of applicants for lesser skilled jobs, and getting to the interview stage is tough. But in the application and, even more importantly, in the interview stage any prospective employee who asks too many questions about ‘entitlements’ never gets the job. Many migrants get caught this way, unless they are looking for work with a person known to or related to their family.

Once the person is working on a trial basis, they are also watched. ‘Will they fit in culturally with the group, and will they happily embrace the group pay rules?’ They can, of course, appeal to the authorities. But, if they do, then they are taxed on their cash and more importantly jeopardise all the other employees. They and their co-workers may be placed on a community employment black list and the business ceases trading.

The cash economy has always been with us, but what high shift allowances and penalties have done is create a far wider subculture that involves a mixture of taxable payments and cash. These are designed not so much to avoid tax but to avoid what normally law abiding citizens regard as bad laws that are aimed at destroying their business.

And older people? Most grandparents who help mind their grandchildren do it for nothing, in a sense of family obligation and help. But very often those grandparents are struggling on the government pension. Superannuation often reduces the pension, and if they work for taxable money they are not only taxed but their pension goes down under the income test. It can be an effective 60 per cent tax rate.

So their children pay them cash and are grateful to have the reliability at a far lower cost than inflated official rates, which make the second job in a two-income family poorly rewarded. And then the practice grows from there.

When you have legislation that effectively taxes people at above 60 per cent (income tax and pension reduction) they look for other ways. What we do not realise is that our politicians, with bad laws, are creating large subcultures among the young and the old within the society that will grow and grow.