Who is to blame when employees are underpaid?

underpaid
Alison Baker

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written on November 28, 2017

What HR managers need to be aware of in terms of award classifications and pay entitlements.

While there is potential to make mistakes with award classifications for employees and wage payment obligations, there is increasingly less tolerance from the Fair Work Ombudsman (FWO) regarding HR professionals and their liability in underpayment cases.

The FWO is regularly using the accessorial liability provision under the Fair Work Act 2009 to hold liable third parties (including HR managers) involved in contraventions of workplace laws. HR professionals should be aware of the Fair Work Amendment (Protecting Vulnerable Workers) bill 2017 which aims to strengthen the FWO’s ability to investigate and penalise serious instances of underpayment.

Accessorial liability recently played out in an underpayments case: a decision handed down by the Federal Circuit Court of Australia found Ezy Accounting accessorily liable for contraventions of a modern award by Japanese food chain Blue Impression.

It was alleged that Blue Impression had underpaid two Taiwanese employees on 417 working holiday visas by nearly $10,000 between September 2014 and April 2015. The employees were paid a flat rate of $16.50, which was below the minimum hourly rate and not enough to cover penalty rates or loadings the employees were entitled to under the award. The contraventions also included a failure to pay evening loading, Saturday and Sunday loading, public holiday rates and a special clothing allowance, and a failure to provide rest or meal breaks.

Blue Impression outsourced its payroll operations to Ezy Accounting, which was aware of the applicable rates of pay and other employment entitlements owing to the employees as it had been the contact point between Blue Impression and the FWO when underpayments were detected.

As such, the FWO successfully argued that there was a practical connection between Ezy Accounting and the contraventions, and that it should be held accessorily liable. While in this case payroll provider Ezy Accounting was found to be accessorily liable, similar charges may just as easily be levelled at HR.

The clear message: HR needs to ensure the employer is using the correct award classifications and paying correct entitlements.

HR needs to understand where the employer may be caught out and engage advice where appropriate to show it has taken reasonable steps to find the correct wage classifications and pay rates.

Such advice may need to include which modern awards apply in the workplace and which employees fit within the classifications of those awards. HR needs to be particularly careful around overpaying staff as a way of hedging against any potential underpayments. Many employers pay their staff a salary above the award minimum rate of pay yet are caught out later because they have overlooked certain entitlements, such as allowances, penalty rates and loadings.

Employers need to understand they can set the salary off against all award entitlements only where the salary is more than the total of each award entitlement and this is carefully provided for in the employee’s employment contract by way of a well drafted set-off clause.

HR managers must be mindful that the FWO will not tolerate a failure to make reasonable enquiries when assessing awards or advising clients (including internal clients).

This article originally appeared in the November issue of HRM magazine. Alison Baker is a partner at Hall & Wilcox.

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One thought on “Who is to blame when employees are underpaid?

  1. I had my pay stoped and was illegally sacked. FWO had me reinstalled twice..but it didnt stop the company and insurance saking me twice and going without pay for 3 months each time…did i get compensation for extra interest charges on mortgage or court judgements nope not even a verbal applogy.
    FWO HAD NO TEETH TO DO ANYTHING ACCEPT GIVE THE COMPANY UP TO 6 WEEKS TO BACK PAY ME AND PUT ME BACK ON.

    UNDER WORKERS COMP EMPLOYEES GOT NO RIGHTS CONTINUALY ABUSED THREATNED LIED TOO AND CHEATED.

    NO RECOMPENSE IR JUSTICE AT ALL.

    THE SYSTEM IS BROKEN.

    THE SO CALLED NATIONAL HR MANAGER DIDNT JNIW THE DIFFERENCE BETEEEN PAYE EMPLIYEES AND CONTRACTORS.

    ANOTHER UNIVERSITY GRADUATE DILL.

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