Do related companies affect  small business status?

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Do related companies affect small business status?

Does the definition of a group of companies for payroll tax determine whether our company is a small business employer under the Fair Work Act (FWAct)?

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Does the definition of a group of companies for payroll tax determine whether our company is a small business employer under the Fair Work Act (FWAct)?

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Q Our company employs fewer than 15 employees, however it is grouped with a number of commonly controlled businesses for the purposes of the applicable state payroll tax legislation. Does this grouping for payroll tax determine whether our company is a small business employer under the Fair Work Act (FWAct)?

A State or territory payroll tax legislation is not relevant in the case of the FWAct.  In the context of the FWAct, there are two areas that need to be considered: Firstly, whether these entities are associated as determined by federal corporations law. If these entities are determined to be associated, then does the total number of employees exceed the definition of a small business employer under the FWAct.

Small business employer — FWAct

Entitlements to employment rights can be determined on whether a worker's employer is a “small business employer”, as defined by the FWAct. A small business employer is one that employs fewer than 15 employees. Certain provisions in the FWAct require the calculation of the number of employees employed at a particular time, which is to include “associated entities”.

 An associated entity is considered in relation to the following provisions under the FWAct:

    • Unfair dismissal law – there is a different minimum period of employment for an employee whose employer is a small business employer before the person qualifies to apply for unfair dismissal (12 months instead of six months)
    • Redundancy pay – the redundancy pay provisions prescribed under the National Employment Standards (NES) do not apply to an employee whose employer is a small business employer (unless otherwise provided by the applicable modern award or enterprise agreement).

Other provisions in the FWAct which relate to a small business employer include:

    • Reinstatement includes appointment to an associated entity in the circumstances provided for in an order to which subsection 391(1A) of the FWAct applies;
    • Transfer of employment between associated entities – see paragraph 22(8)(a)
    • Ttransfer of employment between non-associated entities – see paragraph 22(8)(b).
Corporations Act – associated entity
 
The FWAct (s12) defines an “associated entity” to have the meaning given by s50AAA of the Corporations Act 2001 [Cth]. The meaning of an “associated entity” under the Corporations Act is satisfied:
    • If the associate and the principal are related bodies corporate
    • If the principal controls the associate
    • If the associate controls the principal, and the operations, resources or affairs of the principal are material to the associate
    • If the associate has a qualifying investment in the principal, and the associate has significant influence over the principal, and the interest is material to the associate
    • An entity (the third entity) controls both the principal and the associate, and the operations, resources or affairs of the principal and the associate are both material to the third party
    • One entity (the first entity) has a qualifying investment in another entity (the second entity) if the first entity has an asset that is an investment in the second entity, and has an asset that is the beneficial interest in the second entity and has control over that asset.
If the commonly controlled businesses are associated by any method under the definition of the Corporations Act, then the employees of that entity are included in the total number of employees for the purposes of the relevant sections of the FWAct.
 

 
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