What the hell is happening at 7 Eleven’s head office?

Jake Phillpot

23 November 2015    |   

The Australian Senate enquiry into franchise business 7 Eleven’s alleged underpayment of staff has heard that two thirds of stores have been underpaying staff – that’s up to 10,000 people. In a scramble to resolve the issue, 7 Eleven’s management recently wrote to 15,000 former and current staff, encouraging underpaid workers to come forward. Early results have shown the underpayment has been endemic across the group. Where did 7 Eleven go wrong? As the enquiry rolls on, 7 Eleven will likely claim the data was unavailable to have enough oversight into the practices of franchisees. The other side of the argument will claim the 7 Eleven was simply hiding from a tough business conditions, and was happy to underpay staff to get ahead. What’s going to happen to 7 Eleven? The total liability of the losses is still unknown, but 7 Eleven has set up a third-party company “Independent Claims” which will hide the balance sheet liabilities, handle the underpayments and manage the claims. Head office is going to back pay staff directly, and then attempt to recover underpaid amounts from franchise owners. The big questions is how widespread this is across other groups. The fundamental economics of the competitive pricing models in franchise groups will likely come into question as the enquiry rolls on. It wasn’t too long ago that Dominos and Pizza Hut franchisees were up-in-arms about $5 pizzas, claiming it would force them to find cost cuts in other parts of the business. What should 7 Eleven and other franchise groups do? Head offices should review IT systems and get with the times. Franchise models are successful because of the combination of hard-working and well incentivised owners and best-practice scalable business systems. The best franchises are the ones with the best systems. It was this formula which saw the franchising model take the world by storm in the 20th century. Everyone is talking about big-data and the potential to be unlocked in customer data. A better place to start is to get all of the financial and payroll data in once place. Not only does this give full oversight into wages, but also allows head office to focus on optimising labour costs. The most successful franchisees we work with do one thing very well – they correlate their wage cost with their revenue extremely tightly. Only time will be able to tell the outcome of the enquiry. Our guess is this just the start and the recent Fair Work amendment bill will throw some serious fuel on the fire.

The Australian Senate enquiry into franchise business 7 Eleven’s alleged underpayment of staff has heard that two thirds of stores have been underpaying staff – that’s up to 10,000 people.

In a scramble to resolve the issue, 7 Eleven’s management recently wrote to 15,000 former and current staff, encouraging underpaid workers to come forward. Early results have shown the underpayment has been endemic across the group.

Where did 7 Eleven go wrong?

As the enquiry rolls on, 7 Eleven will likely claim the data was unavailable to have enough oversight into the practices of franchisees.

The other side of the argument will claim the 7 Eleven was simply hiding from a tough business conditions, and was happy to underpay staff to get ahead.

What’s going to happen to 7 Eleven?

The total liability of the losses is still unknown, but 7 Eleven has set up a third-party company “Independent Claims” which will hide the balance sheet liabilities, handle the underpayments and manage the claims. Head office is going to back pay staff directly, and then attempt to recover underpaid amounts from franchise owners.

The big questions is how widespread this is across other groups. The fundamental economics of the competitive pricing models in franchise groups will likely come into question as the enquiry rolls on. It wasn’t too long ago that Dominos and Pizza Hut franchisees were up-in-arms about $5 pizzas, claiming it would force them to find cost cuts in other parts of the business.

What should 7 Eleven and other franchise groups do?

Head offices should review IT systems and get with the times.

Franchise models are successful because of the combination of hard-working and well incentivised owners and best-practice scalable business systems. The best franchises are the ones with the best systems. It was this formula which saw the franchising model take the world by storm in the 20th century.

Everyone is talking about big-data and the potential to be unlocked in customer data. A better place to start is to get all of the financial and payroll data in once place. Not only does this give full oversight into wages, but also allows head office to focus on optimising labour costs.

The most successful franchisees we work with do one thing very well – they correlate their wage cost with their revenue extremely tightly.

Only time will be able to tell the outcome of the enquiry. Our guess is this just the start and the recent Fair Work amendment bill will throw some serious fuel on the fire.

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Greens MP introduces franchise wages bill

A new bill called the Fair Work Amendment (Recovery of Unpaid Amounts for Franchisee Employees) Bill 2015 was introduced to Parliament last week. The bill, sponsored by Melbourne Greens MP Adam Bandt, is a direct response to the recent 7-Eleven saga, in which the Fair Work Ombudsman has already found over $600,000 in underpaid wages and entitlements. The bill aims to prevent this by making the franchisor responsible for correcting underpayments if the franchisee is not able to pay staff correctly and on time. You can read the text of the bill here, as well as its explanatory memoranda. Nobody would argue that it’s fair how 7-Eleven staff were underpaid, but this bill skirts a fine line that all franchisors should be aware of. The bill is written in the typical legalese of the Fair Work Awards and the National Employment Standards, but the gist of it is: If a franchisee employer does not pay an employee by pay day, then the employee, or someone acting on their behalf, can give the franchisor a written demand for payment. The employee doesn’t need to do this immediately. They have 6 years from the pay day in which they can make this request. The franchisor has 14 days to pay the employee what they’ve requested. If the franchisor doesn’t pay the employee within the given 14 days, the employee (or a lawyer) can take the franchisor to court. So if the franchisor disagrees with the employee’s written request… it must go to court! The court must add interest to the amount already owed to the employee. This interest is calculated from the pay day (so at this point it’ll already be 14 days worth). In short, if this bill became law, every franchisor in Australia would have unknown liabilities on their books for the wages of everyone who’s ever worked at one of their franchises any time in the past 6 years. And they could get these written notices if a franchisee gets their payroll out an hour late. This bill could certainly set a precedent for even more responsibilities for head office over what franchisees are doing. We think this could significantly change the dynamics of franchise agreements and cause a lot of headaches. It’s important for franchises to be ready for this sort of thing. Whether mandated by law or common sense, as a franchisor you need to be sure that your franchisees aren’t doing dodgy things with payroll that are going to see your brand on the front page of the Australian.   About the author Jake Phillpot is a Director of Tanda, a specialist time and attendance company focusing on the interpretation of Australian Modern Awards and Enterprise Agreements. Tanda maintains templates of popular Modern Awards including Fast Food, Hospitality, Retail, and Restaurant. These templates include the Fair Work mandated minimum wages of all levels of staff, as well as rules for penalty rates, allowances, and overtime based on the times that staff worked. For more information, read a Franchise Case Study with Red Rooster or call Jake on 1300 859 117. You can also request an enterprise POA.

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The case for small business tax reform

“Can I pay you earlier?” It’s pretty unusual for someone to ask to pay for something sooner than they have to. Yet, this is what’s happening at an astonishing volume all around the country in June. This is the only time of year when people care about timing more than pricing. Everywhere in Australia, offices are upgrading their computers, restaurants are ordering extra stock and tradies are buying new tools. And they need it done this week. This flurry of economic activity looks like a strange and wonderful occurrence at first glance. Just what the economy needs! At least until you think about the maddening cause of this last minute rush to spend spend spend. It’s tax time. The whole purpose of this mad rush is to rack up as many tax-deductible expenses as possible before tax time on June 30. I’m all for tax planning, but this madness isn’t good for anyone, nor is it necessary. The mechanics of the tax system that causes this otherwise irrational behaviour is infuriating. Company tax is often misunderstood in Australia. We have what’s called a dividend imputation system. Under this system, private individuals get credits for income generated by companies which have already paid tax. In simple terms, if Company X makes $100 profit and pays $30 tax, company shareholders can get a $30 credit on their tax bill. In Australia, the ultimate calculation for who pays tax lies with the individual, not with the company. Under the imputation system, a cut to company taxes by 20% would result in a corresponding increase in personal income tax. For small business owners, the choice is usually whether to pay tax inside the company, or as an individual. If company taxes were lower, what would the consequences be? There would simply be more money left over after tax time to reinvest in the business. Wouldn’t it be better if at the end of the year a tradie who made $100,000 had the option of either paying $30,000 tax for their personal income or using that windfall to employ an apprentice? This way increased profits would grow the size of the taxable pie. That’s what would happen if company tax rates were 0%. Contrary to popular political discourse, a cut in company tax rates in Australia won’t line the pockets of wealthy business owners. It will stimulate a new wave of investment across the economy. People start small businesses because they’re optimistic about the future and willing to invest in our economy. Small business owners must make smart investment decisions to survive. Every time a tradie re-tools, they are investing in their own productivity. These incremental gains are what makes an economy grow. We’re talking a lot about innovation at the moment at all levels of Government. What is it that will drive Australia’s economy forward? Surely the fastest route to driving a new wave of investment in innovation across our nation is to distribute the responsibility of investing to those closest to the problems – small business owners. It seems obvious, yet we purposely stifle investment in productivity every day with company tax. Tax cuts for small business are the fastest and clearest route to innovation without monumental government waste. It’s time for a serious talk about small business tax reform.

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Why is it so hard to pay people correctly?

Most people never have to worry about the payroll compliance process required to get someone paid. It’s not a hugely riveting subject; I mean, staff go to work, they work, they get paid. However, as Fair Work’s list of big companies failing to pay legal wages continues to grow, society is starting to wonder why is it so hard to pay people correctly? For the past three years we have made it our business to know the intricacies of payroll, and how to build software which automates the complexities of getting people paid. Currently calculating over $500 million in casual and part-time wages each year, we’re an advocate for those who have the best intention and efforts to pay their staff correctly. With each new wage rate transgression I’m reminded of an old industry saying, “a good payroll officer is somebody nobody knows.” An understanding that attention is only paid to your payroll when there are errors, under-payments or the pay is late. What most don’t realise is that behind a simple payslip are legal questions covered with grey and varying shadows of complexity. Australia is routinely identified as one of the most complex countries to run payroll in, with workforce administration, payroll compliance requirements and regulations identified as the major complicating factors. Far from magic, the time and expertise required to calculate some pay could convince any seasoned mathematician to hang up their wand. In total, Australia has 122 Modern Awards with an average Award having between 180-200 individual rules. These rules specify pay rates for overtime hours during the week and weekend, overtime for RDO, public holidays, late night shifts and employee classification, just to name a few. For big brands and large groups, these calculations are often decentralised, leaving the responsibility to those at ground level without the necessary incentive or knowledge for strict adherence. Broadly, for those who had identified systemic issues, they simply didn’t know how to begin to resolve them. Read a Modern Award document cover to cover, and you’ll empathise with small business owners and executives who might simply not understand the problem, let alone how to guarantee organisational wide compliance. So yes, payroll compliance is hard, complex and costly, but does this excuse paying below minimum entitled wages? Unfortunately not. Complexity is no excuse for non-compliance. It’s the responsibility of businesses, of all sizes, to properly comply with the law. Rather than being loose with interpretations, the answer is to invest in solutions that incentivise and reward compliance management whilst reducing the regulatory burden. Fair Work are unlikely to slow in their mission to bring uncompliant businesses to light, so it’s time for businesses to get smarter about how they manage their workforce and compliance responsibilities. Being smarter and more innovative is the only way to control labour spend in the productive, high-wage workplaces of the future. It’s time to use wage compliance management as a competitive edge. Our company is passionate about building solutions to help good businesses be more efficient while lifting those struggling under the weight of Australian workplace laws. The solution to this problem, if it wants to be solved, is technology. Sign up for a trial of Tanda Enterprise Edition to significantly improve your wage compliance oversight and labour profitability. Tasmin Trezise is a founder of workforce management software, Tanda, which helps businesses get the most from their workforce.

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About the author

Jake Phillpot

Director: Jake manages Tanda's end-to-end customer journey and market growth.

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Events & Media AU Industry Insights

Greens MP introduces franchise wages bill

A new bill called the Fair Work Amendment (Recovery of Unpaid Amounts for Franchisee Employees) Bill 2015 was introduced to Parliament last week. The bill, sponsored by Melbourne Greens MP Adam Bandt, is a direct response to the recent 7-Eleven saga, in which the Fair Work Ombudsman has already found over $600,000 in underpaid wages […]

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The case for small business tax reform

“Can I pay you earlier?” It’s pretty unusual for someone to ask to pay for something sooner than they have to. Yet, this is what’s happening at an astonishing volume all around the country in June. This is the only time of year when people care about timing more than pricing. Everywhere in Australia, offices […]

Awards & Rostering

Why is it so hard to pay people correctly?

Most people never have to worry about the payroll compliance process required to get someone paid. It’s not a hugely riveting subject; I mean, staff go to work, they work, they get paid. However, as Fair Work’s list of big companies failing to pay legal wages continues to grow, society is starting to wonder why […]

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