Sam:
Hello everybody and welcome to today’s webinar. Today’s webinar is on preventing wage underpayment in your business. My name is Sam Andrews. I am a Business Development Consultant here at LegalVision. Fortunately, we are joined today by James True. James is working out of our employment team. He’s a Practice Group Leader in our employment team.
Before we begin today, I just wanted to touch on a couple of quick housekeeping items. First and foremost, we hope you can stay for the duration of today’s session. Nonetheless, it will be recorded and emailed to you. So, if you need to depart for any reason, you will have the recording in your inbox after the call.
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Now I’m going to hand over to James, who will take us through the session. Thanks, James.
Ensure your employees are paid correctly with our free guide on how to prevent wage underpayment.
James:
Thank you, Sam. All right. In terms of what we’re going to talk about today, we’ll run through some key risks of non-compliance when it comes to underpayments; look at understanding what common employee entitlements are and where they come from; how to conduct a wage audit; what your systems and processes should look like; how to identify underpayment; and what to do if you’ve found one.
As Sam mentioned, we’ll try to get to some Q&A at the end. Otherwise, let’s jump straight into it and talk about non-compliance and the associated risks.
This is becoming an increasing focus in the media in Australia when it comes to underpayment issues. The spotlight is absolutely on business owners, making sure you’re paying your people correctly according to the various obligations we’ll discuss. Regulators — predominantly the Fair Work Ombudsman — are increasingly scrutinising businesses. They are better resourced to take action against non-compliance.
Historically, you might have received a slap on the wrist for non-compliance, but those days are well and truly gone.
We see three key risks when it comes to wage non-compliance. Number one is brand reputation. Historically this mattered less, but now, given that these matters make their way to the news, it will damage your brand. The second and third risks are related: penalties and fines for non-compliance, which come with prosecution. You have back-payment liability as well as the risk of lengthy legal proceedings. So, there’s significant risk involved in getting this wrong, and increasingly these cases are appearing in the media.
I want to turn to a few recent examples of non-compliance that you might have heard about.
The most recent is the Coles and Woolworths matter. We’re talking about what’s reported as a potential billion-dollar underpayment. The first part of the proceedings has wrapped up; we expect an appeal. This was ultimately a class action against the two entities for failing to properly manage annual salaries. They paid employees annual salaries thinking that would cover entitlements, but the issue was their ability to offset entitlements owed in one pay cycle with payments in subsequent pay cycles. It’s a huge case and, as I said, we may see an appeal. Even if the appeal limits some of the quantum, we’ve already seen hundreds of millions of dollars in back-payments made even before proceedings started.
Suncorp had a $32 million underpayment. The back-payment included $4.5 million in interest. They were required to enter into an enforceable undertaking with the Fair Work Ombudsman. An enforceable undertaking is an alternative to being prosecuted. The Ombudsman may say, “We can take you through the courts, or we can agree that you admit the contraventions and sign up to a compliance programme.” These programmes are increasingly rigorous. Suncorp also had to pay a $520,000 contrition payment as part of the undertaking.
BHP self-reported a $430 million underpayment. The issue came from how they were managing annual leave and deducting leave on public holidays when they shouldn’t have. Minor errors over time — in this case across about a ten-year period — can add up significantly, especially for a business of BHP’s size.
The last example is a disability services provider with a $1,400 underpayment. That amount pales in comparison to the others, but they still had to enter into an enforceable undertaking, with rigorous and expensive compliance obligations for two years. Even small underpayments can trigger serious regulatory consequences.
The key point is that the risk is not just the underpayment itself, but also penalties, legal costs and reputational damage.
To understand how these issues arise, you must understand what employee entitlements are.
We have many different sources of entitlements. The starting point is the Fair Work Act, which includes the National Employment Standards — covering annual leave, personal leave, notice, redundancy pay, and minimum wage. These standards apply to almost all employees.
Below that, we have modern awards, which apply on both an industry and occupational basis. You may have several awards within your business. Awards set minimum rates of pay, overtime, penalty rates, loadings and allowances.
You may also have enterprise agreements, which apply to specific employers. These may vary award entitlements but cannot undercut them.
Next, employment contracts can provide above-award entitlements, such as bonuses and commissions, and set annual salaries. But contracts cannot override minimum entitlements.
Other legislation, such as superannuation law and state-based long service leave, also applies.
The upshot is a vast and complicated industrial framework. Most underpayment issues arise from modern awards — there are over 120 of them and they vary significantly.
Common causes of underpayment include human error, incorrect data entry, failing to identify the correct award or classification, missing annual increases, failing to apply the correct entitlements, and using annualised salaries without proper reconciliation. Minor errors snowball over time, especially where records are incomplete.
Understanding these entitlements deeply cannot be achieved in a single webinar. Your business must ensure you fully understand the relevant detail.
A wage audit is a sensible next step. You may do an audit after identifying an issue, or proactively as part of your compliance function. Regulators view proactive audits favourably. Identifying issues early allows you to deal with them on your own terms.
Audits vary depending on your internal expertise, resources and record quality. An audit generally involves:
- Understanding the source of entitlements — the award, minimum rates, allowances, loadings, employment contracts.
- Determining what the employee was owed.
- Determining what the employee was paid.
- Considering whether any offsets apply.
- Calculating the liability and planning remediation.
Keeping proper records is critical. Courts will accept an employee’s account of hours worked if the employer cannot produce records. Audits also reveal system weaknesses within your business.
Your systems and processes matter greatly. Understanding your industry, your award coverage, and your workforce profile is essential. Payroll systems must be able to accommodate your obligations. Some businesses fail to record contractors properly and discover significant liabilities too late.
Training is another key consideration. Managers must understand when overtime can be approved. Employees need guidance on when they can work beyond rostered hours. Failure to document overtime can lead to liability years later.
There’s only so much your payroll system can do without accurate data.
If you identify an underpayment, finding it early is critical. Significant or systemic issues should prompt you to obtain legal advice to ensure your rectification is correct. Interpretation issues may require privileged advice so regulators cannot access your legal reasoning.
Your remediation approach depends on the certainty of the entitlement. You may repay in full or take a wait-and-see approach where entitlements are unclear. Communication strategy becomes essential for large-scale issues, especially where media interest is likely.
Self-reporting to the Fair Work Ombudsman is optional. It may reduce penalties, but you must weigh it against the risk of prosecution and whether the Ombudsman will discover the issue independently.
Being proactive gives you more control and better outcomes in managing underpayments.
I’ll hand back to Sam.
Sam:
Thank you very much, James. I think you’ve earned yourself a glass of water. That concludes the main part of our webinar. I’m going to run us through a couple of quick things and then James will come back to answer today’s questions.
Popping up on the screen is a publication you might find useful: How to Prevent Wage Underpayment.
Tomorrow, we have another webinar at 11:00 a.m. Australian Eastern Standard Time on cracking the due diligence code and insider tips for buying a business.
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I’m going to hand back over to James to answer a few questions. While he does that, a poll question will appear on your screen. We’d appreciate it if you take a moment to complete it. We’ll also send a message in the Zoom chat about the chance to win the AirPods mentioned earlier. Back to you, James.
James:
Great. Thank you, Sam. I can see quite a lot of questions about annualised salaries, so I’ll start with one here.
Annualised salaries with set-off clauses have been a hot topic. Guidance was provided on how to comply, but now it seems the playing field has changed. Each pay period must comply. How do employers stay compliant when rules change retrospectively?
The issue is that many thought an annualised salary meant compliance as long as the employee was paid the correct annual amount. The recent Coles and Woolworths decision confirms that each pay period must satisfy all entitlements. This will catch many employers out. The court relied on a section of the Fair Work Act requiring employees to be paid what they are owed at least monthly.
If you haven’t been doing this and are rectifying now, you can proactively audit or adopt a forward-facing approach to ensure your salaries cover all entitlements in each period going forward. Project-based businesses may have high-risk employees due to fluctuating workloads.
Another question asks whether, when using a set-off salary, you include the first-aid entitlement even if the employee isn’t a first-aid officer. You only offset entitlements actually owed. You determine what the employee would have earned under the award for that period — base hours, overtime, penalties, loadings — and compare that with what you paid.
Another question is whether enterprise agreement employees are compared to the award or the enterprise agreement when reconciling pay periods. The answer is the enterprise agreement. The Fair Work Commission will only approve an enterprise agreement if employees are better off overall.
Another question asks how to safeguard against employees disputing which award applies. Ultimately, you must be confident in your assessment. The award applies as a matter of law; it is not a negotiation. If an employee disagrees, they must prove otherwise. Communicate your reasoning clearly.
Another question asks how to ensure effective salary rates in businesses with varying rosters. Varying rosters are a compliance risk for annualised salaries. Awards generally don’t accommodate fluctuating rosters well. The only safe way is to set salaries high enough to cover maximum possible hours.
Another question: is there any requirement to record clock-on times for salaried, award-free managers? Strictly, no. But if you ever face an underpayment allegation, you need evidence of hours worked. Unless salaries are significantly above minimum wage, it’s prudent to understand the buffer between salary and minimum entitlements and monitor employees working close to that buffer.
The final question relates to set-off clauses and how detailed they need to be. They must list every entitlement the salary is intended to cover — loadings, penalties, allowances, overtime rates and so on. General wording is insufficient.
Thank you everyone for joining us.
Sam:
Thank you, James. It’s been a great session today. That’s all we have time for. If we didn’t get to your question, please submit it in the survey at the end and we’ll come back to you. We can also discuss how our membership can help your business.
While this is a free webinar, we value your feedback. Please complete the 30-second survey at the end. Good luck to whoever wins the AirPods, and thank you again, James. Thanks everyone for joining. See you next time.
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