Casual Conversion: How the New Employment Rules Affect Your Business

The legal framework

Earlier this year, the Morrison government’s heavily amended Omnibus Bill passed the Senate, bringing with it a ream of new measures surrounding casual employment. Most notably, it includes a law that requires employers to offer long-term casuals permanent part-time or full-time work after working at the business for one year — or else demonstrate why it’s not appropriate. These new rules came into effect on 27 September 2021.

The purpose of this bill is to help casual employees become ongoing employees, giving them greater certainty and income security. Whether or not this legislation affects your business depends on whether or not your enterprise falls within the definition of ‘small business’. Regardless, there are important changes even small business owners need to be aware of. 

What are the casual employee rules?

As stated by Fair Work, the changes to the casual employment laws mean that employers (except small business employers) need to make a written offer to convert their casual employee to permanent employment within 21 days after the employee’s 12-month anniversary, if the employee:

• has been employed by the employer for 12 months;
• has worked a regular pattern of hours on an ongoing basis for at least the last 6 months; and
• could continue working these hours as a full-time or part-time employee without significant changes.

It’s then up to the employee to respond within 21 days. If they don’t, employers can assume they have declined the offer. From 28 September 2021, eligible casual employees can make a request to convert to permanent employment once every six months (or earlier if they become eligible).

You may have noticed, however, that this amendment doesn’t apply to all businesses — small business employers don’t have to convert their casual employees to permanent employment. Here’s where it’s important you understand the definition of your enterprise, as it could affect the employment structure and costs associated with your business.

How is ‘small business’ defined?

Put simply, it’s doesn’t matter what scale you consider your business to be — it’s the Fair Work Ombudsman’s definition that matters. This is how the Ombudsman defines a small business in the context of the new casual conversion rules:

Businesses with fewer than 15 employees do not have to offer casual conversion (i.e. the new casual employee rules do not apply to small businesses). However, from 28 September, eligible casual workers within these businesses can request to convert to permanent employment at any time on or after their 12-month anniversary with the business.

If your business falls within this definition, it means that you aren’t required to convert casuals to permanent employees. Eligible casuals can, however, request to be converted at any time on or after their 12-month anniversary. This is where things start to get tricky. 

Handling your casual employee’s request for permanency

Once you’ve determined that your business is in fact a small business, there are some new rules to familiarise yourself with. When a casual employee requests to be converted to permanent employment (something they can do every 6 months, if eligible), you are required to respond in writing within 21 days. 

First things first, it’s important to assess their eligibility. If the answer to the following three questions is yes, then you can only refuse the request if you’ve consulted with your employee and communicated why you can’t reasonably accept their request (for example, because the position won’t exist in 12 months, their hours will significantly reduce, or their schedule will change considerably). 

Here are the three questions you must consider in dealing with your casual employee’s request.

1. Have they worked for your business for 12+ months?
2. Do they work regular hours (i.e. do they have an ongoing pattern of hours worked)?
3. Can they continue to work those same regular hours without significant adjustment?

If you decide to refuse their request, you must explain why you have declined to convert their employment — specifically noting any requirement they fail to meet.

For information about what constitutes reasonable grounds to deny a request, visit the relevant Fair Work website.

What these changes mean for your business

As an employer, it’s important that you understand the differences between each employment classification. The type of employees you choose to hire will impact your business’s financial and legal obligations.

There are two types of employees: casual employees and permanent employees (whether full-time or part-time). 

Casual employees

True to their name, casual employees have a looser commitment and obligation to the business they work for. 

They don’t receive any leave entitlements or public holiday payments, as their remuneration is usually based on an hourly rate of pay — with casual loading. In return, casual employees are not obliged to commit to all work proposed by their employer. They also work irregular hours and can end their employment without any notice (unless notice is required by a registered agreement, award, or employment contract).

Permanent employees

Permanent employees, on the other hand, have an obligation to fulfill certain duties and work fixed hours. Their pay is based on an annual salary, outlined by their award or employment agreement. On top of paid leave and public holiday payments, permanent employees are also entitled to written notice or payment in the instance that their employment is terminated.

One thing that doesn’t change between employment classifications is superannuation. Both casual and permanent employees are entitled to receive 9.5% of the value of their ordinary time earnings as superannuation.

As you can see, there are a number of key differences between the types of employment — so it’s crucial that you assess how the conversion to permanent work will affect the running of your business. Will you have enough hands on deck during public holidays and personal leave periods? Can you save money by reducing casual loading? Will you have enough work over the next 12 months for a permanent employee? These are all questions you’ll have to ask yourself when your casual employees reach their 12-month work anniversary.

Now that you understand what this new law means for your business, sign up to our Business Blog to receive the fortnightly Zeller Blog Newsletter — which is packed with useful insights to help your business grow.

To fully prepare your business for the impact of these changes schedule time to speak with your legal or financial advisor. Please note this article is for educational purposes only. Zeller does not accept responsibility for the accuracy of the information presented in this article.