Greg Arnold
6 Nov 2024
Staff underpayment, often referred to as “wage theft”, has become a highly publicised issue.
Could Your Organisation Be Underpaying Staff?
Staff underpayment, often referred to as “wage theft”, has become a highly publicised issue, frequently appearing in the news. High-profile cases and union pressures have led the Fair Work Ombudsman to intensify its focus on wage underpayment. Today, the reputational risk of wage non-compliance is significant, and organisations can no longer simply resolve issues quietly.
In the past, employers could often address underpayment issues with minimal attention. However, the Fair Work Ombudsman is now taking a stricter stance, even if an employer self-reports the issue.
Additionally, with the new Federal Wage Theft provisions about to commence in January 2025, HR and Payroll professionals are at risk of personal liability if there has been deliberate underpayment of wages. In a recent case, a HR Coordinator of the popular restaurant chain has been fined $105,084 for the role she played in underpaying 17 staff members.
This kind of exposure will increase under the new laws, and from January next year there are possible jail sentences for individuals found guilty of wage theft in Australia.
Small Payroll Issues, Big Consequences
How do wage non-compliance issues arise? Commonly, it’s due to limited investment in payroll resources, training, and technology. Even small configuration errors in payroll or rostering systems can become significant over time and across a large workforce. Some key causes include:
Lack of knowledge about Awards: Employers may misunderstand how Modern Awards and other industrial instruments apply to employees.
Incorrect employee classification: While employers might apply the correct industrial instruments, they may fail to update employee classifications over time.
Reliance on annualised salaries: Many industrial agreements don’t allow for annualised salaries in lieu of individual award entitlements, and the amounts paid may not always cover the full entitlements.
Inaccurate record-keeping of hours and breaks: Some employers fail to maintain precise records, making it challenging to determine minimum entitlements.
Payroll misconfigurations: Errors relating to overtime, penalties, loadings, allowances, and superannuation can lead to underpayment.
Improper accrual of leave: Especially with part-time and shift workers, personal or carer’s leave may be incorrectly calculated.
Be “On the Front Foot” – Payroll Audits
How can organisations ensure payroll compliance and reduce risks? Consider the following steps:
Understand applicable Awards: Ensure a clear understanding of relevant Awards and engagement methods, and seek professional guidance if necessary.
Conduct a payroll process review: Walk through the entire payroll process, examining documentation and manual interventions to identify gaps.
Verify payroll configuration: Confirm that the payroll system aligns with Award or EA requirements.
Assess annualised salary practices: If using annualised salaries, confirm they meet or exceed the minimum wage and entitlements under the relevant Award.
Non-Compliance – What to do?
If an underpayment issue is identified, organisations should seek professional advice to understand whether it constitutes a legal contravention and to determine the steps needed to be taken to rectify it.
Organisations facing wage compliance issues often encounter several challenges, such as:
Reviewing historical data: Analysing incomplete data can be time-consuming but can strengthen future payroll processes.
Managing stakeholders: Engaging with entities like the Fair Work Ombudsman, unions, and employees can be complex.
Disclosure obligations: Public companies may have to disclose underpayment issues, alongside tax and accounting implications, regulatory requirements, and potential employee claims.
Throughout this process, it’s essential to maintain the trust of employees, customers, and shareholders to mitigate reputational damage.
Key Questions to Consider for Payroll Compliance
If we pay annualised salaries, have we confirmed they are allowed under our Award or EA and meet minimum terms and conditions?
Do we regularly verify that annualised salaries cover the minimum entitlements?
Are we using electronic systems to record non-rostered hours?
What manual interventions are needed to ensure accurate payroll processing?
How do we track compliance for our migrant workers?
Do we have contingency plans for key personnel in our payroll department?
Does our payroll team participate in ongoing professional development?
Have employees raised concerns about payroll accuracy? How often do we process back pay adjustments or make disclosures to tax authorities?
Small Issues, Big Costs
Over time, even minor payroll errors can accumulate, potentially resulting in significant financial consequences. Wage compliance is not solely a legal issue; it involves record-keeping, payroll configuration, and employment management. Effective compliance requires a strong governance framework to ensure payroll accuracy and prevent future issues.
Small Cost, Big returns
Regular payroll audits are crucial for maintaining compliance, reducing risks, and enhancing employee satisfaction. Proactively reviewing payroll processes allows you to spot and resolve issues early, safeguarding your company’s reputation and financial health. Investing in payroll audits now can save valuable time and resources down the line, avoid hefty fines and support the long-term success of your business.
Start your payroll audit journey with us today!