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Queensland Economic Advocacy Solutions

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The True Cost of Employment

It is widely understood that there are additional costs of employment over and above actual wages paid to an employee.  However what would undoubtedly surprise most is the extent to which these payments sum to.

Indeed when fully understood it leads to the inescapable conclusion that the lot of an employer in today’s environment is not an easy one.

I was motivated to pen this article as a result of one of ABS’s pearls, catalogue number 6348.0 ‘Labour Costs Australia’.  This article shines a torch on the extent of labour ‘on’ costs and what I also term labour 'in' costs that a Queensland employer is legally obligated to pay. 

These payments are the ones that every employer should provide to their employee for reward for work and to ensure a level playing field with their competitors.

I do not seek to pass judgment on each of the components identified.  Taken in isolation each provision has justification of varying force and persuasiveness.  The problem is the sheer volume and extent of the obligation. 

In short for every $100 spent on wages and salaries, measurable labour ‘on’ and ‘in’ costs ‘represent on average $35.90.  This is a payment that in most instances is recoverable through the end price to the consumer but in essence it is an amount that is paid whereby there is no correlating direct output or service from an employee.

In 2015-16 the ABS estimated that Queensland employers provided $120.6 billion in wages and salaries to employees.  Of this amount Queensland employers paid $26.2 billion for where there was no direct output from the employee either through paid breaks, annual leave, sick leave, public holidays, long service leave as provided for under the National Employment Standards.  These are the labour ‘in’ costs.

On top of the $120.6 billion in wages and salaries paid to employees a further $17.1 billion was paid by Queensland employers through superannuation, payroll tax, workers compensation and fringe benefits tax.  These are the labour 'on' costs.

That is in 2015-16 both total Queensland labour ‘on’ and ‘in’ costs amounted to a whopping $43.4 billion.

Of course the direct and measurable labour costs do not tell the full story and there are intangible elements of employment that include community service, jury service and parental leave to name a few. 

There is also an enormous regulatory framework that cannot be measured in monetary terms, but nonetheless imposes very real costs to the employer.  It is impossible to quantify the thousands and thousands of pages of legislation that impact on the employment relationship and the time spent understanding obligations and demonstrating compliance.

I continue to be shocked at the sheer volume of legislative and monetary payments that employers do not or can not directly recoup through productivity from an employee.

Again I do not advocate for their removal but I do believe that employees, unions and society more broadly should not take them for granted just as employees should not be taken for granted.  I genuinely believe in the concept of ‘shared prosperity’.  What is good for the employer is ultimately good for the employee and vice versa.

For example most employers do not take exception to labour ‘in’ costs as they arguably improve the productivity of their employees and there is a return on this investment to the business. Similarly workers compensation and superannuation are widely accepted.  The problem is when everything is aggregated together which erodes our international competitiveness and blunts business capacity to grow and employ.

With both unemployment and underemployment imposing enormous social and economic costs on our community, legislators and the Fair Work Commission, in particular, needs to have a hard look at the sustainability of this level of regulation and entitlement. 

Certainly justification for any additional labour cost must be subjected to the most rigorous examination and in all but the most exceptional circumstances be ruled out.   Our overall objective must be to encourage employment by making it easier not the reverse.

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