The story began one bright blue day in a small Queensland tourist centre on the coast of the northern tropics. It was late winter ­–August – peak season for the small family businesses that make a living serving the thousands of tourists who come to holiday in the area each year. That morning, one of these businesses received a visit.

Around ten am, two official-looking people entered the reception and introduced themselves as Fair Work Inspectors. Having showed their licenses, they proceeded to inform the owners that the reason for the visit was to give a free educational talk concerning the changes in Workplace Relations the Federal Government had begun to roll out since the first of January 2010. As the owners were busy setting the place up for the day, Mike, who happened to be present that morning, sat down for a talk with them.

As it happened, Mike had recently made several phone calls to the Federal Government information line concerning the effects that the federal takeover of the state’s businesses would have for his family’s business. The phone calls, however, had only left Mike and his family confused as to how they would operate from the first of January 2011 onwards, when the law would come into effect for non-incorporated businesses. [clarification information]

One of the inspectors, Colleen, proceeded to explain the legislative changes, while John, her partner, had a look around the premises. To Mike’s surprise, the explanation put forth by Colleen matched none of the information he had received via the federal phone line. As it turned out, the new federal awards under which they would supposedly have to operate from the beginning of 2011 on were not even completed. Colleen then told Mike that their current state award would be amalgamated with the federal award for another, similar industry. Having described the award briefly, she then immediately contradicted herself by informing Mike that it was meant for incorporated businesses, and actually a different version of the award would apply to non-incorporated ones – a version that was still being worked on as they spoke – and whose exact differences when compared to the corporate version she could not quite explain.

During and after the federal election of 2007, repeated assurances had been made that the new system would be simple to implement, and would not cost a dollar more to the small businesses that would come under the federal Modern Awards. Between Colleen’s confusing statements and the look of the new award – shockingly different from the old one – it was clear that something was not right.

For those unfamiliar with Queensland’s legislation, under the state system (non-incorporated) businesses in tourism areas had been able to operate seven days a week with ordinary pay and no penalties for weekends or holiday loadings. The new system, on the other hand, would make it impossible to operate the state’s tourism industry without huge increases in labour costs. Nevertheless, Colleen assured Mike and his family that the increase in their costs would be minimal. Since the new award arrangement was still being debated, she could not say what kind of an effect it would have on the family’s business. Instead, she suggested that Mike and his family consult the government website as soon as the information became available.

What followed were several months of worry and confusion. In the end, the information in question remained unavailable until shortly before Christmas, when the new awards for small businesses finally came online, leaving them with a less than two weeks to get the paperwork organised for the new year.

Among other things, it turned out that the new award would have a transition period of five years, over which there was to be a gradual increase in loadings, penalties, and limitations on the operating hours and days which could be worked, effectively bringing the award into line with the one meant for large federal companies. In practice, it would remove the tourism operating state instruments from all private businesses that operated under them. “Easy to implement” and “not a dollar more” were beginning to look like bad jokes.

For Mike’s family, the year 2011 began with great confusion. Implementing the new award had turned out to be anything but straightforward. The employees were unhappy about both the time sheet arrangements and the work agreement in regards to days worked.

Eventually, one of the staff called the Fair Work infoline, and in another bizarre turn of events, was given information completely different from what had been explained by Colleen. As a result of this, some the employees began to insinuate that Mike and his family were lying to them, and that they were due a considerably larger increase in wages. When Mike tried to pull up the information on the award in order to settle the matter, he found that the documents had been deleted from the government website.

When he later called the federal infoline, Mike was told that he was wrong, and that this award, the one Colleen had initially named, was the correct one for his business – this despite the fact that the award in question was meant for incorporated businesses.

The staff, however, refused to believe the family, with some continuing to demand the wages they believed they were entitled to. This lead to a rearrangement of the hours and days worked until the true position could be established. No one was happy with this outcome, and relations between the owners and the staff continued to deteriorate. Things finally came to a head in February, when the owners received a call from a Fair Work inspector, who informed them that a case had been lodged for underpayment. (Said underpayment had supposedly occurred since 2010, despite the fact that in 2010 the business had not even been under the new award system.)

Shortly the business received another visit from John and Colleen. This time, however, the inspectors were not as friendly as before, as they proceeded to lay out the underpayment claims made by a graduate employee. In addition, the inspectors denied all knowledge of the missing award, and insisted that the corporate award was the correct one for them. Having been threatened with a fine of $33,000, the owners decided to pay the unsubstantiated claim. The full implications of the new system were beginning to become clear.

Not surprisingly, a new claim appeared shortly, this one regarding a trainee of six months. The claim was based on federal training rates, not the Queensland ones under which the trainee had been taken on under. Again Colleen made it clear that the business would have to pay a large increase in hourly rates. When Mike asked for evidence to substantiate her claim, no information applicable to a non-incorporated business could be presented. As a result, Mike began to investigate the new system and its history, going back to its inception in 2007.

As the second claim case dragged on, Mike discovered that the trainee had been contacted by Fair Work and had been encouraged to bring a case with the promise of a large settlement. This spurred Mike to double down on his research. Among other things, he discovered that the whole of the Fair Work legislation might have been unlawful from day one in 2008. When the inspectors came again – in twos, as always – Mike posed them several interesting questions, the answers to which turned out to be even more interesting for the family. The main one at the time was a seemingly simple on: What is the difference between an incorporated business and a non-incorporated one?

To clarify matters here: In an incorporated business, the owner(s) function as the company’s directors, and they are paid a salary by the company. An incorporated company has to report to the national tax office and Australian Securities and Investments Commission, has to hold board meetings and employ an accountant, all of which adds to the complexity and costs of running the company. Should an incorporated company go bankrupt, only the assets of the company are at risk, while the directors’ personal assets are unaffected.

A non-incorporated business, on the other hand, is usually a small business with a sole operator or a family partnership. In order for them to grant loans for setting up or running such a business, banks will typically demand the owners’ personal assets, including the family home, to be put up against the loans. Should the business go bankrupt, the owners will lose everything. Therefore the paperwork and book-keeping will usually be on a considerably simpler system, and an accountant is hired only briefly at the end of the financial year to do the tax returns.

This is a reasonably clear distinction. What’s more, Fair Work Inspectors must complete a three-month training course on the Modern Awards system, including the differences in the way the system affects incorporated and non-incorporated businesses.

However, when asked to define this simple but essential difference, the only answer given was “you will have to get legal advice”. When pressed on this point, Colleen became increasingly defensive and proceeded to intimidate the business owners with threats of court action and fines if the new claim was not settled quickly.

Over the period of January to March of 2011, Mike had found enough inconsistencies to ask more questions of Fair Work in regards to its legislative proof over the imposition of the modern awards on the referring states (QLD, NSW, SA and Tasmania). The main reason was that the Fair Work infoline had clearly stated that the awards covered all private businesses in Australia – a statement that clearly was not true, as Western Australia had declined to join the new system. At this point Mike began to look for the reasons why and how WA was operating in regards to incorporated and non-incorporated businesses, which turned out to be an eye opener.

For now, let’s leave Mike and his family to battle the day-to-day operations of their business (they have bills to pay and problems to sort out), and instead have a look at the Australian business landscape.