New wage underpayment cases are being uncovered almost everyday. Where are businesses getting it wrong and how can you prevent underpayments?
A major national medical centre operator, Idameneo, has back-paid employees $15.3 million and signed an Enforceable Undertaking (EU) with the Fair Work Ombudsman (FWO).
Idameneo provides medical centre management services under its parent company Healius, which includes brand names Primary Dental and Primary Health Care.
Underpaid employees included nurses, administrative staff, doctors, dentists and scientists, with individual back-payments ranging from $1.51 to $131,336, says FWO.
Idameneo assigned an incorrect classification or pay point to some employees, applied an annualised salary rate for salaried employees which did not meet award entitlements, did not pay all additional hours worked by waged and salaried employees, and made other payroll system errors, according to the FWO.
“This led to widespread underpayments of award entitlements including minimum weekly wages, casual loading, various allowances, overtime and penalty rates for weekend and public holiday work,” says FWO.
Idameneo is one of the many employers to admit to underpaying its employees in the recent past. National food and retail company WHSmith and National Library of Australia recently back-paid employees $2.2 million and $250,000, respectively, and signed an EU with FWO.
In its 2019-20 annual report released this October, the FWO revealed that it recovered a record sum of $123 million for underpaid workers during the past financial year.
As of 1 July 2020, the FWO had 72 matters before the courts, in many cases alleging exploitation of vulnerable workers. Fifty four new litigations were filed, more than double the number compared to last year, with 50 per cent of those involved businesses in the fast food, restaurant and café sector.
At the release of the report, FWO ombudsman Sandra Parker said the “prevalence and scale of big corporations underpaying workers is extremely disappointing and concerning”.
The FWO has established a taskforce to tackle this and is also increasing the use of enforcement tools. In 2019-20, the agency issued 952 compliance notices – triple the number compared to the previous year – and recovered $7.8 million in unpaid wages, more than seven times the funds recovered in the previous year.
Union vs non-union workers
Daniel Victory, principal lawyer in the employment and industrial law practice at Maurice Blackburn believes there are three issues at play when it comes to underpayments.
We have seen a decline in union density, says Victory. A highly unionised workplace is more likely to spot issues with underpayments and payroll when they arise, he says. When workers aren’t members of unions, some employers may try to take advantage of that and may underpay workers.
“I think there’s a spectrum of employers – those who have just made honest and genuine mistakes down to employers who think that they can make more money by underpaying their workers. And the decline in union membership affects both ends of the spectrum,” he says.
While union membership may be declining, we’re seeing a rise in class actions related to underpayments with cases such as Drakes Supermarkets and Romeo’s.
Adero Law’s managing principal Rory Markham recently told the AFR that there will likely be an increase in class actions related to underpayments following the recent ruling to remove the requirement for foriegn entities to pay security for costs before proceeding with such class actions.
Departmental distance
The second issue, says Victory, is that over the past 10 or 20 years there’s been an increased amount of outsourcing of payroll systems. Even where there is no outsourcing, the people in charge of payroll “are getting further and further away from the workers who are actually doing the work”.
“The further away the payroll person gets from the business, the harder it is for them to understand how the business actually works and how the employees are working and how that applies to the award or the enterprise agreement that’s in place. That can lead to underpayments,” says Victory.
Payroll review
The third issue is under-resourcing of the payroll function, says Victory. Small or medium-sized businesses may have grown significantly over the past 20-30 years, but they may not have invested in or reviewed their payroll function to evaluate appropriateness for the business that’s being conducted, he says.
Wage underpayments may also depend on who has more power in the employer-employee relationship.
“Generally, in cases where the employer holds a lot of power, and the employees don’t have a lot of power, you’re more likely to find those instances of nefarious under payments or wage theft. Whereas when, if you find an underpayment in an area that’s highly unionised, or where the workers have a lot of power, that’s often a case of some administrative oversight.”
Superannuation guarantee
The other important development was the end of the superannuation guarantee (SG) amnesty in September this year. It allowed employers to catch up on past unpaid super, without incurring a penalty or paying administration fees.
Those that didn’t apply for the super guarantee amnesty and have any unpaid or late paid super to disclose will need to lodge a Superannuation guarantee charge statement and pay the charge.
With the voluntary disclosure period ending, it’s vital for employers to review their superannuation payments to detect and rectify any underpayments.
All underpayments are avoidable and employers can put systems in place to make sure that underpayments don’t happen, says Victory.
Here are five tips from Victory to avoid underpayments:
- Make sure you work constructively with your employees. Make them feel comfortable to raise issues when they arise.
- Don’t cut corners or try to pay people less than their entitlements.
- Regularly review your payroll function to ensure it’s appropriate for your business.
- Make sure the people who are managing your payroll understand awards, entitlements and your business.
- Lastly, make sure your payroll function is properly resourced. If you’re unsure, seek advice from a professional association.
The article does not mention HR at all. HR is the department that is involved in helping to set pays and then advising Payroll what an employee should be paid. It should be an HR responsibility to undertake an annual audit of pays to ensure employees have been paid correctly. Not particularly glamourous work but legally necessary to avoid the issues of underpayment and no doubt over payment that is also occurring.
Make sure your payroll software can handle the complexity of your award
I feel there are different problems emerging in different sectors. Many large corporates, with large HR teams and legal support may struggle to control rostering and overtime occurring in their organisations, particularly if this is left to operational managers far removed from central HR functions. An annual audit suggested by Tasman could work well in this case. Decentralised HR specialists working with the outlying areas of the business would also help. Small businesses who are coming unstuck are likely not to have HR support nor outsource their payroll. Aside from the minority who may be deliberately underpaying for profit advantage… Read more »
It is common that those negotiating an EBA are not the team who have to eventually interpret it to actually pay employees. The final agreement, a result of negotiation between parties often with conflicting objective can result in pay and benefits that are so complex there is an inherent risk of errors. Lots of organisations don’t invest the time to get payroll teams and systems set up for success from the start. Planning and communication are vital.