avoiding-wage-underpayments

 

 

 

 

Author – Graham Wilks

Fair Work Ombudsman continues to act on underpayments

Businesses were ordered to pay over $148 million in underpaid wages last financial year, according to the Fair Work Ombudsman’s recently released 2020-21 Annual Report. Minimum wages have been increased in the majority of awards following the 2021 Annual Wage Review. Increases became effective in a further 21 awards on 1 November. So if any of your staff are covered by an award, make sure you check you are paying them at the correct rate.

Keep on top of minimum wages

After many business challenges this year, checking award rates might not be the first thing on employers’ minds. But it is important. Facing action by the Fair Work Ombudsman (FWO) is not a situation any employer wants to find themselves in.

The FWO has been critical of businesses where it sees ‘ineffective governance and systems of internal controls or … complacency about workplace obligations’. So it is important to demonstrate you are acting in good faith to pay employees their entitlements.

Even so, employers may find themselves having inadvertently underpaid employees. Awards can be complex, provisions may be ambiguous, multiple different awards can apply to a single workplace, and payroll systems do not always keep up.

If you think you might be caught in this situation, do not delay in taking action.

Avoid costly errors

Tracking down the records and working out the extent of any underpayment can be time-consuming and costly. You will need to be able to provide records to show when employees worked, what they were paid, and what they were entitled to – including overtime, penalty rates and allowances. If concerns are raised you may need to go back through your records for some years.

But if you know or suspect you may have underpaid staff and don’t act to address it, you could also find yourself facing costly penalties for breaches of the Fair Work Act. These could come at a particularly bad time for businesses already struggling with cashflow issues.

In our experience, the size of any penalty can depend on the resources of the business, how long the underpayment has been going on, and what steps you have taken to address the issue. Again: do not wait if you think there may be a problem.

Other reasons to keep up-to-date

As well as potential penalties and cost of remediation, problems with underpayment can be very bad for staff morale and make it harder to retain existing staff.

Being publicly called out for repeated staff underpayment can be a public relations disaster for your business. It can make it harder to attract new staff. Further, it can suggest to your clients and competitors that you are not really across what is going on in your business, which can also be damaging.

Are there alternatives to complex award rate calculations?

You may find it simpler in the long run to set an above-award rate for your staff that accounts for overtime, penalty rates, leave loading, classification, shift and other allowances they would have been paid under an applicable award. Such an arrangement removes some of the requirement for constant monitoring. It can also allow greater flexibility which may suit your business needs, and your employees.

If you do want to go down this path, it is important to get advice to ensure that you have set an appropriate rate that does compensate for the employee’s potential entitlements under the award. You still need to monitor rates to avoid falling behind as award rates increase. However, it can be helpful to set a rate that is sufficiently above the award to give you a buffer. That gives you some flexibility as you are not tied to the timing of award wage increases.

As businesses struggle to find skilled staff, offering above award rates or greater flexibility or both, can be great ways of attracting and retaining skilled staff.

We’re also seeing businesses at the point of wanting to expand or take their business in a new direction. The last thing they want is to have high turnover or vacancies they cannot fill.

Steps to resolve a potential payment issue

Check the applicable rates with the Fair Work Ombudsman.

Call your legal and business advisors to help you understand the extent of the problem.

Be open with your employees. Once you’ve identified there’s an issue, develop a communications plan and explain to staff that you think there’s a problem and what you plan to do about it. You don’t have to wait until you’ve completed your investigations. It’s generally better to communicate early than wait for someone to raise a concern.

You will also need to involve the relevant unions, if applicable. Generally you need to outline your investigation and some options for how to address the underpayment.

 

Any decision that affects your business has legal implications. Contact us today to help secure your business for whatever tomorrow brings.

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