Research into Pro-rata Wage Assessment Tools for People Working in Business Services
Table of contents
- Introduction and context
- The Supported Wage System
- Competency-based assessment
- Research findings - feedback from the sector
- Analysis of current assessment processes
- Industrial relations, training and variability
- Assessment tool comparison
- Recommendations
- Additional observations of the research team
Executive summary
This report presents the findings of research conducted by Health Outcomes International Pty Ltd on behalf of the Department of Family and Community Services (FaCS) into pro-rata wages of people with disabilities working in Commonwealth-funded supported employment services (Business Services).
A range of wage determination processes are in operation in Australian Business Services. The research team identified four broad wage determination processes available to Business Services, including:
- historical wage payments (usually without formal assessment);
- productivity-based assessments, including the Supported Wage Assessment Tool (SWAT);
- competency-based assessment; and
- hybrid models (utilising components of productivity and competency-based assessments).
The most commonly applied wage determination processes are historical (ad hoc) payments and productivity-based wages, although in recent times, many Business Services have begun to explore the merits and implications of applying competency-based or hybrid systems.
There was recognition across the sector that wages paid to Business Service employees are generally lower than the ideal, although the financial viability of Business Services is the main determinant of wage levels. Other influences on wage levels were also identified, including the philosophy and history of the Business Service, cost of administering complex assessment systems, competition within the sector and perceived threats to Centrelink entitlements.
In comparing the various wage assessment processes, strengths and deficiencies were identified in each of the wage determination models. The following sections briefly describe the research team's perspective of the advantages and disadvantages of each system.
Historical models
These systems are very common throughout the sector and in many cases have been in place for some time. Wages are often paid on the basis of arbitrary decisions reflecting the organisation's capacity to pay.
Advantages
The historical or ad hoc wage assessment processes identified during the research project are highly variable in terms of wage outcome and structure, although in general, the advantages of such systems include:
- ease of implementation - payment of set wages without formal review limits the cost associated with coordinating and conducting assessments;
- little confusion by employees - workers know what they will be paid and are not required to undergo continual assessments;
- wages can be set at a level that ensures the Business Service is able to pay; and
- employees are not concerned about eligibility for social security benefits, as wages are usually below the threshold for benefit reduction.
Disadvantages
There are a number of disadvantages associated with historical wage determination systems. Whilst some Business Services (in particular, section 13 services) are not required to meet all of the supporting standards of Disability Services Standard 9, FaCS encourages compliance with each of the supporting standards from a quality assurance perspective. Ideally, FaCS supports all Business Services progressing along a 'standards continuum' until full compliance (and therefore best practice) is attained. However, many historical systems may not comply with Standard 9 (and supporting standards) of the Disability Services Standards. In particular, such systems do not necessarily demonstrate that:
- the agency ensures that each employee with a disability has the same rights, protections and responsibilities as other people in the workforce (this is the minimum requirement for all Business Services);
- the agency ensures that each employee with a disability receives an agreed minimum wage or salary that reflects progress toward an award-related wage;
- where the agency is also the employer, the budgeted costs of the agency reflect progress towards an award-related wage;
- the agency recognises that labour costs of employees with a disability are an integral cost of running a business and accordingly are a part of the budgeted costs;
- the agency provides opportunities for career advancement, including access to training and skills development consistent with the opportunities provided in the general workforce;
- the agency ensures that each employee with a disability works in a job and in a work environment in which he or she receives the same employment conditions, rights, protections and responsibilities as those expected and enjoyed by other people in the general workforce;
- the agency ensures that each employee with a disability receives award wage rates or pro-rata award wage rates determined through an independent industrial relations process; and
- the agency ensures that each employee is employed under an award or industrial agreement.
The research team notes that some of the supporting standards above do not explicitly state performance indicators and may, therefore, be interpreted in a number of ways in internal or independent audit processes.
In addition, the following disadvantages of historical/ad hoc wage determination systems have been identified by the research team:
- wages do not reflect the employee's skills or knowledge, which may be considered discriminatory;
- superannuation payments are variable, with some employees earning below the superannuation threshold receiving no superannuation contribution;
- the lack of structured assessment may limit the capacity to identify and facilitate access to appropriate training and skills development;
- wages paid in these circumstances tend to be very low; and
- minimising wages devalues workers and creates unrealistic market expectations of the cost of labour in Business Services, and it also perpetuates a competitive environment in which Business Services 'under-cut' each other to win contracts.
Current wage determination systems that are based on historical pay rates or are based only on the organisation's capacity to pay are not considered appropriate. Business Services employing such systems should be encouraged to explore alternative options and plan for the implementation of a valid assessment tool that complies with relevant standards and the concept of fairness.
Profit sharing
Some Business Services report a 'profit-share' arrangement that applies to wage payments. These structures tend to be ad hoc in nature, whereby profitable business activity results in distribution of profits according to an assessment of contribution toward producing the final product. Usually, these systems operate in conjunction with a basic (historical or simple productivity-based) wage payment. Alternatively, some Business Services employ a quasi profit-sharing process by issuing profit dividends to workers in the form of a superannuation supplement, which therefore does not influence eligibility for social security benefits.
Advantages
The primary benefit of this system is that workers share in the profitability of the organisation. This fosters a sense of ownership in the organisation/product, and encourages workers to self-monitor their own productivity.
Disadvantages
Difficulties associated with this system include determining what is a 'fair' distribution of profits, and the impact that additional 'bonus' payments have on Centrelink benefits for the worker. Workers may also become confused about how pay rates are determined. In addition, Business Service operators are likely to accept work that varies in profitability, which may lead to circumstances whereby the link between effort and reward is unclear.
The research team considers that these systems of wage determination are not appropriate in the Business Services sector.
The Supported Wage Assessment Tool
The SWAT is commonly used in open employment settings for people with disabilities, with some Business Services also adopting the system (or amended versions). See section 5.2 for a table that presents the feedback from informants in the consultation process relating to the advantages and disadvantages of applying the SWAT in Business Services.
The table also demonstrates that there are many reasons in favour of the application of the SWAT across the Business Services sector. Similarly, however, many limitations or disincentives were also identified during the consultation process.
Other productivity models
During the research project, a number of alternative productivity assessment tools were identified, with a similar objective to the SWAT - to determine the output of a worker in the particular job that they occupy. The productivity-based assessment processes reviewed as part of this project usually resulted in the payment of low wages.
Advantages
The primary advantages of alternative productivity assessment processes are:
- they may be adapted to the particular industry/workplace or specific job;
- they can be conducted efficiently, minimising administrative workload and assessment costs;
- they may be linked to awards and included in Enterprise Agreements;
- they do not necessarily rely on a non-disabled co-worker as a benchmark;
- assessing workers without their knowledge minimises bias associated with the employee working at a rate that is inconsistent with his/her usual productivity; and
- the assessment process may not operate from a deficit model.that is, the result of the assessment is not expressed as a proportion of an able-bodied worker's capacity.
Disadvantages
A number of disadvantages were also identified when examining alternative productivity assessment tools, including:
- where the assessment process is not formalised, there is potential for variable assessment practice;
- the use of internal assessors may limit the objectivity of the assessment process;
- the productivity assessment looks only at the job tasks being performed, therefore assessment result is not transferable between jobs;
- variable assessment processes limit consistency across the sector, meaning a worker may be assessed at a different level for the same job in different Business Services;
- some productivity assessment processes are quite simple, although others are complex and may be difficult to understand;
- pay outcomes for people assessed by these processes seemed lower in comparison to the SWAT; and
- assessors are not always qualified in workplace assessment, which may reduce the efficacy of the assessment tool.
In conclusion, the alternative productivity-based assessment tools reviewed generally do not represent best practice in the view of the research team.
Competency-based assessment
There were no Business Services reviewed during the research project that operate a 'competency only' wage determination system, although the hypothetical application of such a system was considered.
Advantages
In a true competency-based assessment system, employees are assessed in accordance with industrydetermined competencies, which are generally linked to training needs identification. This system enhances the employee's potential to progress through a structured career path, and enables transferability of assessment between workplaces, even if the job changes, as many common or generic competencies apply to a variety of industries.
Other advantages of a purely competency-based assessment tool are:
- assessment is usually conducted separately to the Individual Employment Plan by specialist qualified assessors (organisations using a competency-based system are usually committed to principles of life-long learning);
- competencies are recognised regardless of the employee's level of output, rewarding workers that may not necessarily be the fastest, but taking into account the skills and knowledge applied in completing a particular job;
- competency assessment enables the allocation of jobs (particularly more complex jobs) to those who are qualified and competent to fill the position;
- consistent assessment, training and wage determination/classification processes may be used for disabled and non-disabled workers, minimising discrimination and enhancing opportunities for the establishment of integrated workplaces;
- workers may access education and training externally.this contributes to the attainment of competencies or industry approved qualifications (for example, certificates linked to training packages, traineeships/apprenticeships, and so on); and
- there is a clear link to relevant awards, and opportunities for transition to open employment are enhanced as competencies and qualifications are transferable.
Disadvantages
If competency-based assessment does not take worker productivity into account, the wage determination would indicate that anyone with a set of competencies is entitled to 100 per cent of the award wage. This would be considered inappropriate in many Business Services (and in the 'usual' workplace), as the rate of output of these employees significantly influences the profitability (and therefore capacity to pay) of the Business Service. The incentive to employ people with disabilities would therefore be dramatically reduced.
The relative recency of competency-based assessment may also act as a barrier to the implementation of such systems. Productivity-based assessment has become the norm in open employment settings and in a number of Business Services, whereas competency-based assessment has been implemented in relatively few services. Resources directed toward training Business Services and employees in competency-based assessment would be required prior to the implementation of a single assessment tool utilising competency-based principles.
Other disadvantages of an entirely competency-based system include:
- cost.application of a true competency-based assessment system requires the investment of significant resources including assessment costs, training resources and administration/coordination;
- timing.implementing formal competency-based assessment in large organisations will require significant planning; and
- calibration of wage rates in accordance with assessed competency levels.at this stage considered inappropriate, and more work is required to ensure that both the assessment and the corresponding wage rate are fair and equitable.
Hybrid models
Hybrid models identified during the research project are highly variable depending on the balance or priority of competency versus productivity assessment. The hybrid assessment tools considered most effective by the research team include an initial competency assessment component that broadly 'streams' employees by competency level, with subsequent productivity assessment to determine exact wage rates against appropriate benchmarks. Ideally, the benchmarks are set by a co-worker in an integrated workplace environment or are documented in appropriate industry standards. Only one assessment process examined during the project links the competency assessment to endorsed industry training package competencies.
Advantages
As may be expected, the hybrid model has the potential to utilise the best components of both productivity and competency-based assessment tools, although the research team is reluctant to recommend any of the current models as an ideal example of best practice.
The potential benefits of the hybrid model include:
- recognising competencies of employees as well as their outputs;
- enabling transferability of assessment (or parts of the assessment) between jobs or workplaces;
- assessment methods are flexible and the worker has a greater involvement in negotiations associated with the assessment;
- enhancing links between training and employment, and between open and sheltered employment;
- rational links to awards can be developed;
- the capacity to place the most appropriate person in each job is enhanced; and
- issues associated with refined or tailored jobs are minimised, as is the reliance on co-worker benchmarks.
Disadvantages
Whilst the hybrid model is the preferred model of the research team, there are potential disadvantages that should be considered before adopting a hybrid assessment model. These issues include:
- a hybrid system may be complicated and difficult to understand for Business Services and employees alike.decisions relating to the negotiation of wages based on these assessments should be made after clear discussion of the assessment process and outcome. A single assessment process across the sector will minimise confusion;
- hybrid models may be manipulated if wage calculation following the assessment is inappropriate. Again, a single validated system will minimise the potential for misuse of a hybrid model;
- Business Services would be required to allocate significant resources toward assessment (if not subsidised) and in-house (on-the-job) training, in addition to facilitating access to external training programs; and
- whilst elements of the assessment would be transferable and linked to open employment, dichotomous assessment processes in Business Services and open employment settings will remain. Ultimately, however, the single assessment tool for Business Service employees may be adapted to open employment settings.
The research team concluded that a hybrid model represents the most appropriate method of wage determination in Business Services. However, the team is reluctant to recommend any of the existing tools as the preferred method of hybrid wage assessment.
Recommendations
The research team proposes the following recommendations:
Recommendation 1
A single wage assessment tool for wage determination in Business Services should be developed on behalf of FaCS. The assessment tool should be developed in close consultation with the sector, undergo extensive testing and build on the strengths of existing assessment processes.
Recommendation 1A
In the design of the single assessment tool, the following existing assessment mechanisms should be reviewed in further detail, as these systems exhibited some sound elements:
- The SWAT
- The Greenacres tool (Wollongong, New South Wales)
- Wangarang Industries (Orange, New South Wales)
- WestCare Industries (Perth, Western Australia)
Recommendation 2
The assessment tool should combine elements of both competency and productivity assessment, which links directly to endorsed industry standards wherever practicable. The development of the assessment tool should include identifying the competencies incorporated in industry training packages that are most applicable to Business Service activities.
Recommendation 2A
The dual assessment elements should not compound reductions in wage rates. For example, an employee with 50 per cent of level x competencies working at 50 per cent of the productivity benchmark should not receive 25 per cent of the relevant award wage (that is, 50 per cent x 50 per cent). A 'sliding scale' approach should be adopted.
Recommendation 3
The preferred tool should include provisions for a minimum wage 'safety net' for employees of Business Services. Further, the minimum wage should be in the order of $50 per week, appropriately indexed to increases in award rates of payment (or the CPI). Pro-rata payment of the safety net wage is not considered appropriate.
Recommendation 4
The assessment tool should be applicable to all industry settings in which Business Services operate. This may require the conduct of an industry audit. This will enable identification of the appropriate industry training packages (and competencies) with which the assessment tool should be linked.
Recommendation 5
The assessment tool should provide a direct and rational link to appropriate awards. Current wage structures that link historical pay rates to an award by identifying a proportional award payment without a defined assessment process are not considered appropriate.
Recommendation 6
The single assessment tool should be not only a valid and appropriate assessment system, but the calculation of corresponding wage rates should also be considered. It is considered that the wage determination process should be incorporated into the assessment tool.
Recommendation 7
As part of the development and trialing of a single assessment tool, comparative studies in some Business Services should be conducted to monitor the impact of implementing the new tool on the cost of wages.
Recommendation 8
Wage determination assessments should be conducted by independent assessors (endorsed by FaCS), who hold the national units of competence for conducting assessment (or equivalent), namely:
- BSZ 401A Plan Assessment
- BSZ 402A Conduct Assessment
- BSZ 403A Review Assessment.
Recommendation 9
Wage assessment should be conducted in a process that is separate to the employee's Individual Employment Plan, yet is strongly linked to goal-setting, training needs identification and career path establishment.
Recommendation 10
Wage determination assessments should be closely linked to training opportunities for employees in Business Services, including both in-house (on and off-the-job) and external training (for example, involvement in TAFE courses).
Recommendation 11
‘A Guide to Good Practice Wage Determination’ should be made available to all Business Service outlets and relevant industrial relations organisations, particularly Industrial Relations Commissioners involved in the assessment of Enterprise Agreements.
Recommendation 12
Business Services should enhance links with the training sector, particularly with registered training organisations, to facilitate the achievement of recognised industry-related qualifications.
Recommendation 13
Business Services should demonstrate a commitment to the payment of superannuation for all employees, including those earning less than the superannuation guarantee threshold. This minimises discrimination on the basis of reduced capacity to earn full award wages.
Recommendation 14
The implementation of the preferred single wage assessment tool should be included as part of ongoing quality assurance monitoring.
Recommendation 15
The implementation of a single wage assessment tool for Business Services should include subsidisation from FaCS to assist in the payment of independent assessors and potential increases in administrative costs, at least during the preliminary implementation stage.
Recommendation 16
A training program for Business Service managers, Centrelink, consumers and employment agencies should be developed and implemented to address misconceptions/misinformation relating to the impact of award-linked wages on social security benefits/eligibility.
Recommendation 17
Prior to the implementation of the single assessment tool, a training program should be conducted describing the rationale for the tool, with particular emphasis on the competency-based assessment component.