Business groups have criticised the Fair Work Ombudsman for failing to properly administer flexibility clauses in the Fair Work Act, claiming small business owners need more guidance.

Flexibility clauses enable employers and employees to negotiate their own agreements relating to working hours and rates of pay.

Clauses introduced by Fair Work Australia are designed offer business owners a way in which to ease spikes in labour costs resulting from public holidays, weekends and overtime.

Such clauses allow businesses to pay staff a year-round flat rate, higher than the award wage, in lieu of penalty rates and holiday loading.

This enables them to extend their opening hours or to remain open on public holidays.

But according to Gary Black, executive director of the National Retail Association, the flexibility clauses in the Fair Work Act are a “sham” and “completely ineffective”.

Black has criticised the clauses for their lack of practicality on an enterprise level, and poor administration by the Fair Work Ombudsman.

“An employee or employer can sit down in good faith and devise an agreement that is suitable for both, but there is no way they can know at the time of entering into the agreement whether it is valid,” Black told The Australian Financial Review.

“Later on, the Fair Work Ombudsman can come in and say, ‘No, we don’t think the no-disadvantage test has been met here, the agreement is invalid’ and you have to back pay the higher wage in retrospect.”

“It’s an entirely unworkable agreement, particularly for small businesses. They’re just not going to take the risk.”

According to a spokesperson for the Ombudsman, it is the employer’s responsibility to ensure that the individual flexibility arrangement (IFA) meets all the requirements of the Fair Work Act.

“IFAs do not need to be approved by Fair Work Australia,” the spokesperson says.

“[However,] if an employer fails to ensure that an IFA is properly made in accordance with the Fair Work Act, they may be liable to a penalty of up to $6,600 for an individual or $33,000 if the employer is a body corporate.”

Peter Strong, executive director of the Council of Small Business of Australia, says business owners face a dilemma when deciding between a flexible agreement and paying penalty rates.

“They’re faced with the decision: do I break the law or do I shut my shop and not look after my employees who want to work on a Sunday?” he says.

“If entering into these agreements were that easy, a lot of [small businesses] would’ve already done it. All it takes is the Fair Work Ombudsman to help them do it.”