Thursday, 9 September 2021
By Ronald Holtshausen and Alexandra Shields (Norton Rose Fulbright) 

As flexible and remote working during the COVID-19 pandemic become the new normal, employers must guard against accidentally underpaying employees.

The COVID-19 pandemic has disrupted our work lives in a multitude of ways, forcing many companies to change their business models, reassess their requirements of employees and facilitate employees working from home. These changes have seemingly happened overnight and, in many cases, are becoming our new normal.
Industries are evolving at an unprecedented pace as businesses pivot to head off disruption and competition and meet emerging consumer demand in new markets. The office environment has also changed, with remote and flexible work arrangements likely to remain for many years to come. In addition to changing work arrangements, employees are also being asked for more in their present roles.
This perfect storm of flexible working arrangements, changing roles and rapidly diversifying business models can unwittingly cause companies to find themselves underpaying employees, especially when record keeping is insufficient.
Based on our experience the key problem is the growing disconnect between the employee workforce and supervisors.
As employees continue to work from home, supervisors lose crucial oversight over the hours employees are working and what they are working on. As a result, employers may be unaware that employees are working overtime or during periods when additional entitlements are applicable, or completing tasks beyond their current classification.
It is not only organisations that are adapting; so do the requirements of the Fair Work Act, whether it be to the COVID-19 pandemic (where we saw some emergency amendments to the legislation), legal interpretations or award rates. 

Are employee underpayments deliberate and are the consequences only financial?

Unidentified overtime hours, misclassification of positions or misinterpretation of awards and legislation is far from new. Before the pandemic, high-profile companies and institutions, such as Woolworths, Commonwealth Bank, Qantas and the ABC, have been accused of underpaying staff, sometimes to the order of hundreds of millions of dollars.
It’s important to note that in our experience underpayments are largely unintentional and rarely caused by deliberate corner-cutting or malfeasance. Nevertheless, it can have damaging consequences. If companies fail to pay employees in accordance with the modern award or an enterprise agreement, or otherwise fail to give them due entitlements under the Fair Work Act, there are stark financial penalties, including an obligation to back-pay employees with interest.

But the consequences can be so much more than immediate financial loss, which can be quickly eclipsed by the damage sustained to an organisation’s reputation, employee morale and workplace culture. In many organisations, employees lose faith in the organisation and understandably feel let down by the oversight — no matter how unintentional the error.

Keeping pace with work changes

It’s hard to quantify the exact extent of employee underpayment, but there is little doubt that all businesses — big and small — need to be aware of the increased risk of wage underpayment in the COVID-19 work era. Any employer must actively guard against the risk of underpayment to protect their workers, their company’s reputation and their bottom line.
The key advice to employers is to know exactly how employees are working and what they are doing.  The new way of working has created a new risk that this knowledge is lost given the out of sight out of mind mentality.
In our experience, supervisors are often shocked to discover instances of underpayment due to a disconnect between the agile response of the business to COVID-19 and the flow through of that change to the way in which hours are worked and recorded by payroll or HR departments.
It is also worth considering how well older HR and payroll systems are equipped to deal with the remote working revolution or the changes made to the Fair Work Act, and legal interpretations. Even with new systems, management should not be overly confident and must ensure that systems are configured correctly and operate as required.
Naturally, it behoves employers to keep abreast of all changes that affect what an employee should be paid – whether that be a change in the way they work, what they do or changes to legislation and other industrial instruments.

Prevention is better than cure 

If companies and businesses are to avoid underpaying their staff during the pandemic and beyond, it is best to be proactive and take a multi-faceted approach to compliance.
This begins with superior record keeping, which not only equates to good governance, but makes it easier to track and fix any payment issues.
Some initial questions to ask yourself include: 
  • Do you have records of when your employees worked from home and the hours that they worked?
  • Do you know whether employees’ roles have changed?
  • Can you access that information for statutory requirements?
  • Can you go back six years to find out what hours a particular employee worked?
  • Can you see changes in employee rosters?
The answer to these questions relies on proper record-keeping and communications with employees.
Our clients often proactively engage a forensic or legal practitioner to help them review their payroll systems, award classifications, hours of work, payroll rates etc., conduct sample-based employee re-calculations, if necessary, and review hourly and penalty rates.
When dealing with large companies — businesses with hundreds or even thousands of staff — even minor underpayments can quickly become an intractable data problem and we are often called in to use sophisticated data algorithms, underpinned by the correct legal framework, to identify errors.
Some instances of underpayment can extend back decades, and companies use our data technology to eliminate human error and uncover the true scale of the issue.
Forensic methodologies also follow a repetitious pattern that allows us to run our calculations repeatedly, enabling all stakeholders — including employers, employees and the Fair Work Ombudsman — to review the data and see how our conclusions were drawn.
Unintentional underpayments are often an emotive issue: staff feel aggrieved, and the managers are equally mortified by such a consequential misstep. An external auditor who can uncover the problem —as early as possible — can provide much-needed clarity through hard data.
Most importantly, payment compliance is not a set-and-forget proposition in which you install a piece of software and never have to think about it again. Rather, it is an evolving and dynamic issue that requires ongoing vigilance to keep pace with award rates as the business grows and adapts and employees continue to work remotely and with greater flexibility.