Wages are a significant, if not the most significant cost to businesses, particularly those whose core activity is the delivery of labour-intensive services. Despite this, there appears to be a substantial amount of Australian businesses who are failing to keep abreast of their obligations to employees in relation to wages and entitlements.
The last couple of years have seen the Fair Work Ombudsman’s investigation and prosecution of a plethora of businesses over claims of underpayments of wages and entitlements. This is increasingly being referred to as ‘wage theft’ and increasingly on the political radar. In November 2018, a Queensland Parliamentary Committee reported that wage theft in Queensland alone amounts to $1.8 billion annually.
Unfortunately, this problem appears to be relatively widespread, even amongst Australia’s largest and best resourced companies. For example, the 7-Eleven franchise has come under fire over the last few years with the franchisor being found liable for underpayments and breaches of the Fair Work Act by a franchisee. In 2019, underpayments were found or admitted by companies such as the ABC, Qantas, Super Retail Group (Rebel Sport, Supercheap Auto, BCF), Commonwealth Bank, Michael Hill Jeweller, MAdE Establishment (George Calombaris), Sunglass Hut, Bunnings, Rockpool Dining Group (Neil Perry) and, most recently, Woolworths.
The estimated total underpayment by the above companies exceeds $385 million and affected tens of thousands of employees. Not only did these companies have to back pay past and present employees, heavy penalties were also imposed on many of them. In some cases, the penalty was disproportionate to the underpayment. For example, last year a 7-Eleven franchisee was penalised $335,664 in relation to underpayments which only amounted to $6,674. Another company, Sushi Bay, faced penalties of $124,416 in respect of unpaid wages worth $18,671. In other cases, employers were also liable for unpaid superannuation and/or payroll tax, as well as interest payable on those amounts.
Whilst most companies admitting these underpayments say that the underpayment was inadvertent, it’s clear that their size and, presumably, access to internal and external HR and legal resources to assist with setting and monitoring wage rates, was insufficient to prevent these breaches. Whatever the reasons for the underpayments, the fact remains that this is an issue which tends to attract significant media attention and so has a high potential for reputational damage.
Unfortunately for those in the not-for-profit sector, discovering underpayments can have the added sting (or even fatal knockout punch) of impacting on their state and federal funding arrangements.
For example, the Queensland Government Service Agreement – Standard Conditions requires funding recipients to, amongst other things, pay wages and entitlements for employees. Accordingly, underpayment of these entitlements will place a funding recipient in breach of their funding agreement, exposing the organisation to the risk of suspension or withdrawal of funding.
Funding recipients are also required to ensure that any subcontractors also pay wages and entitlements for their employees and so any failure by subcontractors to do so will place funding recipients in breach of their funding agreement.
Clause 4.5(d) requires funding recipients to notify the relevant department if they become aware of any matter where significant media attention has occurred or is likely to occur.
There are similar provisions in the Commonwealth Standard Grant Conditions (as supplemented by the Supplementary Terms).
The upshot of this is that employers who rely on state or federal government funding or grants must ensure that all of its employees are paid their lawful entitlements. As we can see from the companies listed above, this can be a difficult task and is easy to get wrong.
It is also worth noting that directors and senior officers of organisations can also be held personally liable for unpaid wages and associated penalties under the Fair Work Act and for unpaid wages, superannuation and PAYG tax (and associated penalties and interest) under the Corporations Act and taxation and superannuation laws.
That being the case, it is worth employers considering undertaking an audit of past payments and, where underpayments are found, back paying affected employees immediately.
To avoid future underpayments being made, employers should:
- consider allocating to at least one senior employee (e.g. HR Manager/CFO/COO) responsibility for ensuring correct rates are paid – this should involve:
- ensuring that the correct hourly rate is being paid (note that Award rates are updated every 30 June – we recommend subscribing to updates to the relevant Award on the Fair Work Commission website and diarising a reminder to check/adjust wage rates annually);
- ensuring that employees are being adequately compensated for all hours worked (either through the payment of overtime or under an employment contract which appropriately provides for the set-off of any over-Award payments against overtime payable under the Award);
- ensuring that any subcontractors comply with their obligations to employees and that they indemnify the employer for any failure to do so; and
- regular reporting to the Board as to compliance;
- ensure employees are allocated the correct classification level under the relevant Award on commencement and that this is reassessed at least annually to avoid ‘classification creep’; and
- ensure that accurate records of overtime worked are kept for all employees (note, this is a requirement under the Fair Work Act) so that these can be used to verify amounts paid to employees; and
- ensure that employees are provided with payslips for each pay which indicate the hours worked and the rates of pay applied to those hours (note, this is also a requirement under the Fair Work Act). With easy access to relevant information on the internet, employees are increasingly savvy and able to double check pay rates. Although this may initially be seen as problematic, employers should instead remember that staff queries about pay rates can bring the issue to the employer’s early attention when rectification is likely to be easier, less financially painful and less public.
Underpayments are not only a “bad look” for your organisation, they have the potential to undermine its ongoing financial viability and result in personal liability for directors and other officers. It is therefore vital that employers take immediate action to understand and meet their obligations to employees for wages and other entitlements. This can be a daunting task for any sized organisation but the reputational and financial risks associated with failing to do so mean that this issue cannot be ignored.
Please contact us if you would like assistance with understanding your organisation’s obligations to its employees.
 E.g. Qld Parliamentary Inquiry Into Wage Theft in Queensland; NSW Senate Legal and Constitutional References Committee Inquiry Into Stolen Wages and various unions and other parties calling for a Royal Commission into wage theft;
 Education, Employment and Small Business Committee.
 Report No. 9, 56th Parliament – A fair day’s pay for a fair day’s work? Exposing the true cost of wage theft in Queensland
 Other notable employers who made underpayment headlines in 2019 include Commonwealth Games, Subway, Caltex, Dominos, Endota Spa Sydney, Coffee Club, Foodco (Jamaica Blue and Muffin Break) and Crust Pizza.
 Clause 4.3