Is an Owner or Director considered an employee?

It is essential to understand where an Owner or Director sits with regards to head count, prior to certain action being taken by the business.

A “Small Business Employer” is defined in the Fair Work Act as an employer with fewer than 15 employees, and has access to a number of concessions in relation to the termination of employees, such as:

1. An exemption from the obligation to pay redundancy pay to eligible employees in addition to notice of termination;
2. An increased period of 12 months’ continuous service an employee of a Small Business Employer must complete before they can be eligible to bring an unfair dismissal claim against the employer; and
3. An additional defence to an unfair dismissal claim by demonstrating compliance with the Small Business Fair Dismissal Code.

Determining if you have fewer than 15 employees is not so easy when you ask this question:

‘should your Owner or Director be considered an employee for the reason of these calculations?’ 

There is no inherent reason why an Owner or Director cannot be an employee at the same time, in fact, there are many scenarios that may implicate an Owner or Director as an employee.

There is the obvious scenario of an Owner or Director drawing a wage from the business, making them an employee. This is logical and fairly simple to negotiate.

But, it becomes very complicated if the Owner or Director is only accessing directors discretionary earnings by drawing on the cash assets or equity of the business. This means – they may not be considered as an employee.

….but wait there is more!

If an Owner or Director is receiving a  benefit from the business in anyway, such as provision of a motor vehicle or access to business property, this may further endear them to be considered employees for head count calculations as a small business (1).

Another factor to consider is control. If the Owner or Director acts as an ‘officer of the company’ or has direct control and influence over operational matters they could also be considered to be an employee.

“like many areas of Human Resources, this is a grey area that needs careful consideration”

You must understand where the Owner or Director sits before you take action. Remember to count the number of employees either at the time the employer gives an employee their notice, or the time immediately before their dismissal, whichever was earlier. Always count all full-time and part-time employees plus any casuals who are engaged on a regular and systematic basis.

The following classes of employee will be counted when determining whether an employer employs fewer than 15 employees at the date of a dismissal and is therefore a Small Business Employer under the Act in Australia:

1. All permanent part-time and full-time employees of the business;
2. All permanent part-time and full-time employees of the business of an associated entity (e.g. companies with common directors or ownership, including employees of such companies working overseas);
3. Casual employees of the business, or the business of an associated entity offered regular employment over a protracted period of service, regardless of:
   1. any variation in the hours they may work; or
   2. whether they have a reasonable expectation of ongoing employment with the business.

If your business is close to the 15 person threshold, with or without the Owner or Director, I suggest you get some external advice from someone like wattsnext who can remove the emotion and mitigate risk.

When it comes to dismissals and redundancy matters getting this ‘count wrong’ is not only costly, but a very emotionally draining scenario.

Make sure you know where your top executives fit when it comes to your head count and save yourself the heart ache and emotional upheaval a mediation brings. Never assume and always see external advice.

#HRfortheModernWorld

Fair Work Ombudsman v Grouped Property Services Pty Ltd [2016] FCA 1034 per Katzman J. 

Photo by Adeolu Eletu.