Apart from being an ugly term, ‘wage theft’ has the potential to severely damage an organisation’s reputation and place its ongoing viability at significant risk.
A 2019 KPMG report put the annual figure for wage theft in Australia at more than $1.35 billion, affecting an estimated 1 million workers. It found that wage theft affected every sector of the economy. Additionally, according to Australian Industry Super, nearly 1 in 3 Australians are being underpaid almost $6 billion in superannuation every year.
Over recent times, there have been some very well publicised cases of some very large and well-resourced organisations underpaying large number of staff over extended periods of time. These include Woolworths ($390 million), Qantas ($7 million), George Calombaris’ MAdE Establishment ($8 million) and the Commonwealth Bank ($53 million) to name but a few. The requirement to make back-payments, pay interest on back payments and penalties imposed by the Fair Work Ombudsman has caused each of these companies significant and ongoing problems.
The fact that these well-resourced companies got it wrong highlights not only how easily underpayments can come about, but also the need for ongoing vigilance in ensuring strict compliance.
There are various reasons why underpayments are made. Whilst some companies are no doubt making deliberate decisions to underpay wages (e.g. through illegal cash-in-hand payments and agreeing a salary without regard to minimum Award rates or other entitlements such as penalty rates), the reality is that most underpayments are inadvertent.
Underpayments often come about due to simple but potentially damaging payroll errors. Take, for example, a simple data-entry error. Where the error affects only one or two employees, once discovered, it can be quickly and easily rectified through appropriate back payments. However, where the error applies to a large number of employees, this might result in a significant underpayment which then starts to take on the hue of a more systemic problem, exposing the organisation to being branded as being guilty of wage theft.
Other easily avoided errors that can lead to underpayments include:
- wrongly classifying employees under the relevant Award (including failing to review employees and position descriptions for “classification-creep”);
- wrongly interpreting Award or Fair Work Act provisions as they relate to your organisation;
- failing to update employment contracts; and
- failing to review annualised (or all-inclusive) wages or salaries to ensure they meet the better off overall test.
Where underpayments are in relation to ordinary time earnings, that also results in an underpayment of superannuation.
Given the potential for underpayment issues to affect an organisation’s reputation and financial viability (including the potential to impact funding arrangements), it is more important than ever that every organisation keep up with their obligations with respect to employee entitlements.
To ensure that your organisation does not have a current underpayment issue, we recommend undertaking an audit of its payroll system and practices so that any existing issues can be identified, managed and, if necessary, rectified in a timely manner.
To ensure ongoing compliance, organisations should:
- undertake regular periodic reviews of pay-rates, Award classifications and job descriptions;
- keep accurate records (including time and wages records such as timesheets and leave records); and
- undertake regular reviews of annualised wages or salaries paid to employees (to ensure that employees are receiving at least the Award minimum taking into account their actual hours of work and the projected hours used when setting the salary or wage).
As board members can be exposed to personal liability for underpayments of wages and superannuation, we also recommend that:
- someone within the organisation is tasked with ensuring compliance with wages obligations; and
- the issue of meeting wage payment compliance is set as an ongoing board meeting agenda item.
Don’t let underpayments to employees undermine the good reputation that your organisation has earned through the good work that it does. Taking some simple steps now can help avoid issues and, at the very least, give peace of mind that your organisation won’t become the next ‘wage theft’ headline.
Please let us know if we can be of assistance with any of the above.