With the new financial year comes another increase in labour costs, with minimum wage and award rates rising by 4.75%. For many small and medium business owners, this increase is more than just another expense. It’s forcing a difficult but necessary question: Can I continue carrying employees who are not performing?
Over the years, I’ve worked with countless business owners who have tolerated poor performance far longer than they should have. I too, have been the business owner who has fallen into that trap.
Often, it’s because we’re busy, dislike conflict, feel loyal to employees, or simply want to see the best in people and hope things will improve. But when wages increase, every employee becomes a larger investment. If a team member is already struggling to meet expectations, that increased cost can shine a spotlight on a problem that has been quietly impacting the business for months, sometimes even years. However, if you’re thinking the wage increase gives you a reason to terminate an underperforming employee, there is something important you need to understand.
The wage increase is not the reason for termination. You cannot terminate an employee simply because their wage has increased and you no longer believe they are worth the cost. What you can do is address genuine performance concerns that have existed prior to the wage increase and take appropriate action through a fair and lawful process. Many business owners make the mistake of saying things like:
- “I can’t afford them anymore”
- “The wage increase has made them too expensive”
- “They’re not worth what I’m paying them”
These statements can create significant legal risk if a dismissal is later challenged. The focus should always remain on documented performance issues, not the employee’s pay rate.
It might be time to ask yourself an honest question before considering termination: Have you actually managed the performance issue?
In many cases the answer is no. The employee may have:
- Never been told their performance is unacceptable
- Never received clear expectations
- Never been given feedback
- Never been warned about the consequences of continued poor performance
- Never been provided with support or training
If that’s the case, the problem isn’t just poor performance. It’s poor performance management.
Many business owners underestimate the true cost of an underperforming employee. It’s rarely just their wage. Poor performers often create reduced productivity, customer complaints, increased mistakes, lower team morale, additional workload for stronger employees, increased management frustration and lost business opportunities.
Now add a 4.75% wage increase to an already costly situation and it’s easy to understand why many employers are reassessing their teams. The issue isn’t necessarily that wages have increased. The issue is that the business has been absorbing the cost of poor performance for too long.
Don’t Let Frustration Drive the Decision
One of the biggest mistakes employers make is allowing financial pressure to drive emotional decisions. The conversation often sounds like ‘the wage increase starts next month and I’ve had enough.’ Unfortunately, employment law does not care how frustrated you are. If you terminate someone without following a fair process, the cost of an unfair dismissal claim can quickly outweigh any savings you hoped to achieve. The process matters just as much as the reason.
Sometimes poor performance can be a symptom of a role that no longer serves the business. Before terminating someone, it might be worth considering has the role changed significantly?
- Have business needs evolved?
- Does the employee have strengths that could be used elsewhere?
- Would restructuring the position make more sense?
A fresh look at workforce planning may reveal alternatives that benefit both the employee and the business.
The beginning of a new financial year provides an ideal opportunity to review position descriptions, clarify performance expectations, set measurable goals, conduct performance reviews, and establish accountability measures. Many performance problems occur simply because expectations have never been clearly defined.
The 4.75% minimum wage increase is causing many business owners to scrutinise labour costs more closely than ever before.
The reality is that good employees are worth every cent of a wage increase. The bigger question for business owners is whether they have allowed poor performance to continue unchecked for too long. If the answer is yes, now is the perfect time to start having the conversations you’ve been avoiding.
