Managing poor performance

Performance management comprises a significant part of a business owner’s role, however, underperformance is often avoided and can lead to an unproductive and unhealthy workplace.

Establishing effective performance management systems can significantly improve problems with poor performing employees. Whether underperformance is exhibited through unsatisfactory work performance, disruptive behaviour or non-compliance with workplace rules and policies it needs to be addressed.

Poor performance should be dealt with promptly as issues may become more serious over time and can ultimately affect the entire workplace. Here are some ways to manage underperforming employees:

Identify and assess the problem
Gaining an understanding of why the employee is underperforming is the first step to generating an effective solution. There are many reasons why an employee may be performing poorly such as vague goals and expectations, interpersonal differences, not enough feedback on performance, mismatch between employee’s capabilities and the job expected of them etc.

Assess how long the problem has existed, how serious the problem is and how wide the gap between expectations and what is being delivered is before scheduling a meeting with the employee. When arranging a meeting ensure to inform the employee of the purpose of the discussion and ensure it takes place somewhere private. Be clear, specific and relaxed when talking about the issue. Ensure the employee understands what the problem is, why it is a problem, how it impacts on the workplace and the outcomes that should result from the meeting.

Devise a solution
When working out a solution allow the employee to contribute to the solution and make sure it is easy to follow. Devising a solution requires you to explore ideas by asking the employee open ended questions, offering assistance and emphasising common ground. Create a detailed plan of action which includes:

• Performance expectations over a specific time period

• Roles and responsibilities of the employee

• Strategies for training and career advancement

• The value and worth of their role

Monitor performance
Set a date for another meeting to review performance against the agreed plan of action even if the issue has been resolved. Providing positive and negative feedback to the employee should ensure performance improvements are maintained. If more serious action is required, consider further counselling and issuing formal warnings before termination of employment.

Employers need to be aware that they cannot dismiss employees in circumstances that are “harsh, unjust or unreasonable” so it is important to be fair to employees when it comes to termination of employment.

Choosing a business location

One of the top considerations new business owners face when preparing where to operate is location. Location is one of the most critical decisions as it can determine whether customers will enter your store or shop with your competitors.

There are many factors to consider when determining location such as demographics, visibility, supply chain, competition, budget and legal and environmental obligations. Here are some tips to help you decide on the right business location:

Determine what your business requires
Understanding the key demographics of your target market can provide insight into where your customers live and prefer to shop. As most businesses will choose a location that provides exposure to customers, it is worth considering visibility and accessibility when deciding on a location. Other considerations include:

• Competition: Are neighbouring businesses competing or complementary?

• Future growth: Do you plan to expand or grow in the future? Will you have extra space if needed?

• Image: Is the area consistent with your brand image?

Forecast your finances
When determining how much you can afford, it is a good idea to forecast any additional financial costs you may incur such as:

• Transportation: What will be the cost of moving business equipment?

• Redecoration: Will the location need any improvements such as repainting?

• Tax: What are the income, sales and property tax rates for your state? Could you pay less taxes by operating across a nearby state line?

Research the area
The business premises and its surroundings will have a large impact on whether your customers will travel to your location. Study the foot and vehicle traffic for the area to ensure the location is practical for your customers. Some questions to consider include:

• Parking: Is there a parking lot for the shopfront? Is there affordable public or street parking nearby?

• Public transport: Is it convenient to access with public transport?

• Commercial activity: Are there similar businesses nearby? Is the area run down or a thriving shopping precinct? Does your business create noise or smells that may affect neighbouring stores?

Superannuation shake up

Changes announced in the 2016 Federal Budget will see the shutdown or conversion of tens of thousands of transition to retirement pensions (TTRPs) into full pensions.

An estimated 550,000 TTRPs are currently in place around Australia, used mainly by taxpayers in their late 50s and early 60s who are reducing their work hours, or by low-income earners who are trying to boost their super balances before retirement.

However, many are also used as a tax minimisation strategy by high income earners, as they enable workers over the age of 55 to access their super while still working.

To do this, individuals must salary sacrifice a portion of their income to a tax-free transition pension, which allows them to continue contributing to their super while paying 15 per cent super contributions tax. To supplement their take-home pay, individuals draw income from their TTRP account.

High income earners who don’t need extra cash withdraw money from their pension and pump it straight back in.

Under the Budget’s new rules, earnings generated by transition retirement pensions will be taxed at 15 per cent, rather than being tax-free.

High income earners who transfer money withdrawn from their TTRP directly back into superannuation will now be subject to a $500,000 lifetime limit on after-tax contributions.  

The changes mean that TTRPs would only be useful for those who require extra cash while they reduce working hour numbers of for those who can make larger contributions to super than they might otherwise.

Crackdown on superannuation tax may create borrowing spike

Tougher superannuation rules may create an unintended spike in risky property borrowing by those with a self-managed super fund, with experts suggesting that the changes will force SMSFs to load up on debt in an attempt to increase returns.

While there are still incentives for people to wanting to own property within their SMSF, under the new rules announced in the 2016 Federal Budget, rather than being able to fund investments through their own equity, many SMSFs will be forced to take on more debt to do so.

Most of the superannuation changes are due to take effect from 1 July 2017. They include a $1.6 million limit on the amount that can be transferred from a super accumulation account into a retirement account and a new lifetime limit on non-concessional (after-tax) contributions of $500,000, backdated to 2007, which took effect on budget night.

In most cases, super funds are not allowed to borrow. The exception is the limited recourse borrowing arrangement, which is only allowed in Australia’s SMSF sector.

Since 2013, the Reserve Bank of Australia has expressed concerns over the number of SMSFs taking on debt to invest in property. More recently, the ATO has cracked down on SMSFs that don’t qualify for bank finance turning to related-party loans to buy property.

Integrating social media into your email marketing strategy

Integrating social media and email marketing can do wonders for a business’s marketing efforts. Although quite effective individually, combining social media into an email marketing strategy can extend a business’s email reach and increase the number of followers and subscribers.

Integration also provides more than one platform for businesses to connect with their target audience, allowing them to find key influencers and providing more options to email subscribers. Ways to integrate social media and email marketing include:

Inserting social icons into emails
Email campaigns should include all the social icons for the social platforms a business uses. Make sure they are placed near the top of an email and are large enough to grab the attention of readers.

Asking subscribers to share email content
Sometimes including social icons in your email is not enough. Although many subscribers would recognise icons of LinkedIn, Twitter and Facebook, they may not know what action they should take on seeing these icons. Don’t hesitate to tell them; including simple call to actions like ‘Share this email’ next to the icons.

Reach more subscribers through the social networks
If your business has a strong following in a certain social network, don’t be afraid to ask for new email subscribers through that network. One way to do this is through promoting your website’s email newsletter sign-up page through a status update or tweet.

Add ‘Retweet This!’
An effective way of blending social media with email marketing is to highlight a certain tweet within an email. Displaying a specific tweet in the email goes well with the mantra of “share your community’s stuff”.

Federal Budget – superannuation flexibility

The Budget has made changes that reflect that the current superannuation system is at a kilter with individuals current lifestyles, with the introduction of more flexibility to address this.

Concessional contributions
Individuals under the age of 75 will now be able to claim tax deductions for personal superannuation contributions. From 1 July 2017, individuals can make concessional super contributions up to the concessional cap. This will benefit partially self-employed individuals and partially wage and salary earners whose employers do not offer salary sacrificing.

The Budget will improve the superannuation balances of low-income spouses as the current spouse tax offset is extended to assist more families in accumulating superannuation. The current income threshold for the receiving spouse (whether married or de facto) will be lifted from $10,800 to $37,000.

A contributing spouse will be eligible for an 18 per cent offset worth up to $540 for contributions made to an eligible spouse’s superannuation account.

Catch-up concessional superannuation contributions will be introduced to allow those with lower contributions and interrupted work patterns to make ‘catch-up’ payments to boost their nest egg. This will apply to those with account balances of $500,000 or less whereby allowing unused concessional contribution caps to be carried forward on a rolling basis for up to five years.

Contribution rules removed for older Australians
Australians aged 65 to 74 will be able to access the bring-forward of non-concessional contributions, minimum work requirements for voluntary superannuation contributions and restrictions on spouse contribution from 1 July 2017. The incentive is to assist older Australians to make superannuation contributions appropriate to their circumstances.

Retirement income products
Barriers are being removed to endorse innovation in the creation of retirement income products. These income products can enhance the flexibility and choice for retirees to better manage risk and improve their standard of living in retirement.

From 1 July 2017, the tax exemption on earnings in the retirement phase will be extended to products such as deferred lifetime annuities and group self-annuitisation products.

Federal Budget – Small Businesses

This year’s Federal Budget is based on a ten-year enterprise tax plan designed to stimulate more small business activity by boosting new investment, creating jobs and increasing real wages.

One of the key features of this plan is that the small business entity annual turnover threshold will be increased from $2 million to $10 million from 1 July 2016. The increased threshold will not apply for the purpose of accessing existing small business capital gains tax concessions.

The Government will also reduce the corporate tax rate for businesses with a turnover of less than $10 million per year to 27.5 per cent from 1 July 2016. This lower rate will be progressively reduced to 25 per cent over 10 years.

An 8 per cent unincorporated tax discount will be provided to unincorporated businesses with turnover less than $5 million per annum, capped at $1,000 per year from 1 July 2016 for the following eight years. The discount will increase to 16 per cent in increments from 2024 to 2026 to coincide with the staggered reductions in the corporate rate.

All Australian small businesses from 1 July 2016 with an annual turnover of less than $10 million will have access to:

Simplified depreciation rules
These include immediate tax deductibility for asset purchases costing less than $20,000 until 30 June 2017.

Simplified trading stock rules
New rules will give businesses the option to avoid end of year stocktake if the value of their stock has changed by less than $5,000.

A simplified method of paying PAYG instalments
Instalments will be calculated by the ATO, removing the risk of under or overestimating PAYG and the resulting penalties that may be applied.

The option to account for GST
Small businesses will have the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO.

Other tax concessions
Other tax concessions that are currently available to small businesses, such as fringe benefits tax (FBT) exemptions (from 1 April 2017 to align with the FBT year).

A trial of simpler BAS
The trial is to reduce GST compliance costs, with a full roll-out from 1 July 2017.

These threshold changes will not affect eligibility for the small business capital gains tax concessions, which will remain available for businesses with annual turnover of less than $2 million or that satisfy the maximum net asset value test.

Wage subsidies for employers

The Budget’s plan to enhance wage subsidies is set to benefit both job seekers and businesses in Australia.

As part of Budget reforms, existing wage subsidies (including those for youth, parents, Indigenous, mature age, and the long-term unemployed) will be streamlined to make them more accessible for employers.

Wage subsidy arrangements will be simplified to be much more flexible and provide job seekers with incentives to break into the Australian workforce.

Employers will have wage subsidies available to them from the first day of a job seeker’s employment. Employers will also have the flexibility to choose how often instalments are paid (fortnightly, monthly or another arrangement) and over what time period.

Rather than being paid out over 12 months, wage subsidies will now be paid out over six months at a flat rate instead of pro-rated instalments.

Federal Budget – superannuation

The Budget has introduced a series of changes to superannuation tax arrangements that are intended to align superannuation with the purpose of providing income in retirement.

The key elements of the superannuation changes include:

• Introducing a transfer balance cap

There will be a $1.6 million superannuation transfer balance cap on the total amount of super that individuals can transfer into retirement phase accounts. While this limits taxpayer support for tax-free retirement phase accounts, it does not restrict the savings that can accumulate outside of superannuation.

• Increasing the 15 per cent tax rate on concessional contributions

Those with combined incomes and super contributions greater than $250,000 will now be required to pay 30 per cent tax on their concessional contributions. This extends the current treatment of people with combined incomes and superannuation contributions over $300,000. Superannuation fund members who are affected will still have significant incentives to save for their retirement alongside other provisions.

• Lowering the superannuation concessional contributions cap

The superannuation concessional contributions cap will be lowered to $25,000 per annum to provide more flexibility and accommodate modern working arrangements. Reducing the caps will only affect around three per cent of superannuation fund members, who will still be able to make enough contributions during their working life to be self-sufficient in retirement.

• Introducing a $500,000 lifetime cap for non-concessional contributions

The lifetime cap will limit the extent individuals can use superannuation for tax minimisation and estate planning. Less than one per cent of Australian superannuation fund members have made contributions above this cap since 2007.

• Introducing the Low Income Superannuation Tax Offset

The Low Income Superannuation Tax Offset (LISTO) will replace the Low Income Superannuation Contribution when it expires on 30 June 2017 to continue to support the accumulation of superannuation for low-income earners. The LISTO will allow individuals with an adjusted taxable income of $37,000 or less to receive a refund of the tax paid on their concessional contributions, up to a cap of $500. The LISTO will, in particular, assist women to build their superannuation savings.

Federal Budget – individuals

The Government is now giving individuals a greater incentive to work without being taxed more by making a start to personal income tax relief.

The changes will take place from 1 July 2016 and will prevent average full-time wage earners from moving into the second top tax bracket until 2019-2020, by increasing the 32.5 per cent tax threshold from taxable incomes of $80,000 to $87,000. This will affect around 500,000 taxpayers who will no longer face the 37 per cent marginal tax rate.

The policy objective is designed to keep those earning average wages in the middle tax bracket for longer. This measure will reward hard working Australians for doing more overtime, picking up more shifts, taking a promotion or a better new job, without being penalised by paying more tax through the higher rate.

In addition, the Government will increase the low-income thresholds for the Medicare levy and surcharge from the 2015/16 income year, so that low-income taxpayers can continue to be exempted from paying the Medicare levy.