By Greg Romeo, Solicitor, Kelly Workplace Lawyers
If you are considering taking a job from a new employer, or accepting a new role from your current one, there may be an opportunity for you to negotiate terms that are more favorable than have been offered. Asking for better terms is highly circumstantial and will vary from employer to employer. If you believe your employer, or prospective employer, is willing to negotiate, this guide illustrates some of the more overlooked terms that may give you a benefit above and beyond any improvement in salary.
1. Sign on bonuses
Some employers may offer a ‘sign on bonus’ as a way to attract a highly skilled or a specialised employee, or where the role is particular and the employee market is limited. Where competition for the position is strong, or where the employer has many similarly placed applicants, a sign on bonus is usually not offered, making it a rare occurrence in a stable employment market.
Things to look out for when considering a sign on bonus
A sign on bonus most usually comes in the form of a lump sum payment prior to commencement, sometimes calculated as a percentage of the annual wage in the coming year.
However, because there is always the possibility the employee may leave (making the sign on bonus a net loss for the employer) the sign on bonus may be linked to a minimum period of service, such as successfully completing the probationary period. This can be problematic when the ‘sign on bonus’ is drafted so as to take shape as a forgivable loan, which will require the employee to pay back the company the amount of the bonus if they fail to serve out that length of service. In this circumstance, the employee may find themselves in the less than ideal scenario of being advised that they have not only failed to complete their probationary period, but they are also out of pocket because they have to repay the sign on bonus. This can be avoided by ensuring the sign on bonus is not tied to performance or service.
Additionally, in the case where you must resign from some other position, a sign on bonus may not actually provide a bonus at all where an amount of accumulated long service leave must be forgone. For example, an employee who has accumulated a non-transferable amount of 5 years of service must reset that amount upon taking a new position. A sign on bonus at the new position may therefore only compensate for a loss of accumulated leave and not represent a true ‘bonus’.
It is also important to consider what lifestyle changes you must make upon taking the role. Some things to consider are whether the weekly working hours at the prospective role are longer than those for the current position, travel distance, the job description and greater responsibilities required in its performance and other contractual requirements. The immediacy of the sign on bonus is what makes it attractive, but it may not be worth the sacrifices required in the long term.
Lastly, you should be mindful of other terms of contract that may have been varied to offset the bonus payout. That is, if an employer knows you are asking for a sign on bonus then they may look to remove the cost of that payment from elsewhere in your contract. If possible, you should obtain an employment contract before negotiating a sign on bonus so that any changes to wages and other benefits can be identified.
Sign on Bonus or Retention bonuses
Where as a sign on bonus is offered as a lump sum prior to commencement (and ordinarily requires a period of service to be served), a retention bonus incentivises an employee by rewarding them with gradual payments the longer the employee stays with the employee. In this way, a retention bonus is less risky for an employer because it is paying for services it has already received. Employers may also feel safer in rewarding long serving employees as it safeguards against employee poaching. It also becomes more valuable to an employee because the employer no longer is required to protect themselves from the risk of an upfront payment (by the methods explained above) making it much more likely that it provides a genuine bonus.
Identifying the difference is important as you may be able to more readily negotiate a retention bonus with an employer.
2. Increase in lieu of increment
If you are to be employed by an employer who has in place an incremental cycle of wage increases, you may be at risk of losing the opportunity of a pay raise. This will depend on the commencement date of your employment and the cut off date at which the employer assesses performance.
An incremental cycle of review is a system whereby an employer will stipulate certain periods of a year in which they will assess performance in considering pay raises for the next. If the commencement date is placed later than the stipulated date then you will have to wait a whole other cycle to be given the opportunity to a pay rise. This issue is problematised further where the increment cycles have cut off dates and where the employer is aware that the increment cycle is approaching, making it beneficial for them to delay the commencement day of the employment contract.
One common request then when negotiating is to ask to obtain the increase from the increment date (usually 1 January or 1 July) without being assessed at the increment. The basic rationale is that, had you been working for the company earlier in time, the increment would have been achieved.
3. Relocation costs
Where an employment position requires relocation of residency, a number of unforeseen costs may arise. These may include:
- The costs of physically relocating: including the costs of transfer, flights or other travel requirements, new car registration costs and initial school fees for children.
- Temporary moving costs: for example where a future residency has not been acquired yet and you are required to short stay in rentals or hotels.
- Sponsorship of foreign partner: where a spouse or dependent relative lives with you overseas, that person may need to acquire a visa sponsor.
- Lifestyle allowance: May apply where there is a drastic change in the living costs of the area.
- Loss: Where for example there will be a loss on a house sold (due to a downturn in market) to purchase a house in the new location (where there is no downturn in market). It may also capture selling costs such as real estate and advertising fees, and forgone fees such as school fees, gym fees, club membership fees etc.
The costs associated with moving listed above are all negotiable and incorporable into a contract of employment. The readiness of an employer to pay for expenses will depend on the strength of the bargaining position you hold, but consider that if they are asking for you to move, then they already have a higher appreciation of what you can bring in comparison to what can be found locally. The employer may also have accounted for relocation costs via contract on their own calculations.
The form of payment will depend on the circumstances of the individual but are usually provided either as a reimbursement for costs, an allowance or payment to a third party for the purposes of relocation. However, income tax will apply to allowances paid prior to costs incurred as opposed to reimbursements of costs already paid, with the result that an allowance is drastically less effective at offsetting relocation for the employee unless the employer is also willing to provide a higher number to offset the tax. That tax is paid by the employee not the employer as it assessed as income – this may also adversely impact on your nominal tax rate.
Apart from a payment from the employer, you may also be eligible for government funded relocation assistance, which provides up to $3000 for city moves, $6000 to rural moves and an extra $3000 if relocating with dependent children. Details can be found at https://www.employment.gov.au/relocation-assistance-take-job
As an employee considering relocating it is extremely important to make a realistic assessment of the real costs of the move before entering into negotiations. If an employer is not willing to meet those costs, the increase in salary may not be worth the cost and disruption to your lifestyle. It may be best to discuss the move with a relocation expert in the area you are proposing to move to.
4. Paid time off and Flexible Schedules
Most Awards allow for an employee to elect taking time off in lieu (TOIL) of being paid for overtime and many workplace have an informal process for allowing staff to take time off when they have worked long periods. Time off in lieu arrangements may be highly attractive to those employees who have family commitments or dependents as it offers a flexibility that is less formal than the flexible work provisions in the Fair Work Act. If your Award or workplace does not include a TOIL program, it may be of interest to negotiate one. One issue to be mindful of is that Awards that do allow for TOIL are most likely to be on a “time for penalty arrangement” meaning the time off reflects the higher payment that would have otherwise been paid for working overtime, such as allowing for 1.5 hours of accumulated TOIL for each hour of overtime worked.
Cashing out of annual leave is also possible if a relevant Award or enterprise agreement permits it. In effect this allows an employee to be paid for the amount they would have had as paid time off for accrued annual leave, in order to allow them to continue to work as per usual. This is only permitted under law if:
- The employee will have 4 weeks of annual leave left over
- No coercion or pressure was exerted on the employee
- The cashing out does not leave the worker worse off had they taken the paid annual leave
- A written agreement is made each time cashing out for this purpose occurs.
If cashing out annual leave is something you value, it is important that you communicate this to your prospective employer as cashing out annual leave is usually of great benefit to employers as they are not required to pay another, less experienced person to fill your role while you are away and comes at no greater cost to them.
Other flexible working arrangements are also becoming commonplace. They most often take the form of permitting a person to work from home on scheduled days or allowing them to work according to a different pattern of hours, or an elected pattern of hours. The ability to negotiate an arrangement (perhaps more than any other listed in this article) is going to depend on the type of work performed and the culture at the company.
Some work may lend itself to being performed at home while others will obviously require a physical presence in the office. The employer’s relationship with its employees is also of vital importance. The ability to assess this may be extremely difficult to an employee not accustomed to the work environment they are entering.
Many employees are not aware that The Fair Work Act (2009) also provides the legal entitlement to request flexible working arrangements. The right of
request is afforded to those employees who are parents or are responsible for the care of a child under school age or a child under 18 who suffers from a disability. The right is one of request; it does not require the employer to grant it. However, a refusing employer must detail the reasons for a refusal, the refusal must be based on reasonable business grounds and the employer must explain why the request cannot be reasonably accommodated for based on the reasons provided.
5. Cash in lieu of benefits
It is common practice to offer employees fringe benefits either as a gesture of good will, the promotion of good corporate culture or to provide better tax breaks for both employee and employer. For example, paying for an employees dental insurance, for which they would be paying in any case, may bring that employee under an income tax threshold.
However, an employee may not need certain benefits and may instead prefer the proportional increase in wage say, for example, where they are on a family dental insurance plan. In these instances, it would be more valuable for the employee to request the employer provide a higher wage in place of a benefit.
Some of the more usual benefits offered to prospective employees include:
- Vehicles, property, shares or bonds;
- Child care costs and school fees;
- Personal phone bills and other like services;
- Phones, electronics, computers, clothing (exempt from benefits tax)
- Superannuation payments made for a spouse
To note, if you would prefer to sacrifice your salary for the tax benefit it provides, the sacrificed salary must stay sacrificed for the period of the arrangement under tax law.
In conclusion
As a practical reality, the ability to negotiate for better terms will depend on the employer’s demand for you as a worker. Some factors to consider, when assessing your relative value, include:
- The specialized skills that you can provide to the employer, of which they are unlikely to find elsewhere.
- The relative rarity of similarly equipped professionals applying for the job.
- How the job was offered. Did the employer approach you or was the application made by you via an application process?
- Are you being asked to leave a position to work for the new employer?
- Do you have to relocate in order to take on the position, or will it cause some disruption to your personal situation?
- The history of the employer in offering individualised contracts and their willingness to negotiate with other employees?
- Has the contract has been offered on a take it or leave it basis or has the contract been specifically tailored for you?
If you wish to discuss the above further, then please contact Greg Romeo on (03) 9639 6003.