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PKF Australia

Accountants and Business Advisers

Who do you want on your team?

Who do you want on your team?

The passing of the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 in September 2017 provides Franchisors not only with increased obligations but also with an opportunity to protect their brand by ensuring they have the right people on the team representing the brand. A quality team of Franchisees are the Achilles Heel of a Franchise network. Without them, there is no team, and without a team there is no Franchise.

As with anyone who represents your brand, choosing who you want on your team is a difficult decision, and you wouldn’t accept those who don’t have the right experience, ethics or values.

All of these questions are at the heart of the Vulnerable Workers Amendment:

  • What processes do I have in place to ensure I have the right people on my team?
  • How do I monitor this on an ongoing basis to ensure team members continue to comply with the law and represent my brand with distinction?

Getting your team right – Who should be on my team?
The answer lies in knowing what makes your Franchisees “tick” and using this knowledge to develop a risk framework for “at risk” behaviours to determine if the Franchisee is someone you want on your team. This due diligence element is critical not only at the start of the relationship, but in an enforcement context if you are required to act on non-compliance later in the relationship.

In our experience, key questions you need to ask, include:

  • What is their motivation for joining your brand?
  • Are they active within the network?
  • Do their values and ethics align with your brand positioning?
  • Do they understand and acknowledge employment laws and local business custom?
  • How do they respond to compliance measures?
  • What feedback do you get from customers and business managers about the Franchisee and his/her employees?
  • What is the composition of the workforce? Do they employ a high proportion of part-time employees? What is their motivation for employing these types of people
  • What is employee turnover like at the sites?
  • How do sales compare to internal benchmarking and other Franchisees?

Ongoing Monitoring: Behaviours versus numbers
Your ongoing program of monitoring does not need to be “war and peace” and prohibitively expensive to be effective. In fact, in our experience, a static and single audit program applied to your whole Franchise network, is the most ineffective approach to identify non-compliance. It also frustrates those who are doing the right thing, and adds little value to the Franchise network.

A risk management framework that is effective in interpreting behaviours; the composition of the workforce; the number of family members working at a site; regularity with which profit assistance is sought – in our experience a focus on these “red flag” behaviours is far more effective in policing compliance.

In 85% of all investigations conducted by PKF, it was the assessment of behavioural characteristics which identified non-compliance, not the numbers.

Is your perfect Franchisee really perfect? Behavioural analysis vs numbers
We have performed audits for Franchise groups with 30 sites to groups with over 600 sites - and the pattern is the same. In one case, a retail Franchise group was forced to investigate Franchisees following unfavourable media coverage. Management had hesitated whether to even include some of the Franchisees as they were seen as “star performers”.

These Franchisees ran profitable operations and were active and well respected within the network. The numbers for these Franchisees enforced the view that these truly were “star performers”. The payroll records matched back to the accounting and taxation records. On the surface these Franchisees were highly cooperative with the investigation providing the requested records and facilitating interviews with their staff. Yet something was wrong.

Our framework gave us the ability to look beyond the preliminary findings and we found that:

  • The Franchisees’ workforce had 80% of employees on student visas, 10% on a skilled or spouse visa and the remaining 10% were permanent residents or citizens born in a country outside of Australia.
  • Over 90% of the employees spoke English as a second language.
  • Based on the records, all of the employees commenced employment at the start of the audit period.
  • The Franchisees hailed from a country where the minimum wage is eight times lower than Australia.
  • One of the Franchisee’s drove a brand new luxury car but had claimed for financial assistance from the Franchisor as the store was losing money.

In isolation the numbers did not hint at non-compliance, but when we considered the behavioural intelligence, the risk of non-compliance sky rocketed.

From there, we were able to concentrate our efforts on speaking with vulnerable employees in the pursuit of whistle-blowers who could confirm our suspicions of wage and visa fraud. The strength of the whistleblower evidence enabled the Franchisor to act on these Franchisees.

The cost of getting it wrong
The absence of a framework to respond to the Vulnerable Workers Act can result in penalties of up to $126,000 per contravention for individuals and $630,000 for corporations.

The reputation cost is so much higher than that.

Much of the information and processes required to respond are most likely already within your network.
Understanding how to utilise this in a sensible and cost-effective way to achieve compliance is the challenge.

Takeaway
It is important to have a risk-based approach to focus your resources and spare your good players from the audit process; remember that the numbers never tell the whole story; open lines of communication with Franchise employees are key. Use this opportunity not just for the purposes of complying, but most importantly, to strengthen the quality of your team and protect the brand.

 

By Baidy Laffan - PKF Franchisor Assurance Services Director

First published in Franchise Leaders 2018


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