Thursday, 21 November 2019

Some of Australia’s most trusted brands and organisations have been in the headlines for all of the wrong reasons of late, owing to employee underpayments. ‘Wage theft’, as these incidents have become known, are proving costly on many fronts, by eroding companies’ reputations and finances, as well as negatively impacting staff loyalty and consumer trust.

Woolworths, for example, has underpaid approximately 5700 employees over the past nine years, with repayments expected to cost up to $300 million1. Australia’s biggest bank, The Commonwealth Bank, has underpaid approximately 8000 employees with repayments costing $4.8 million. On a separate occasion, the bank underpaid 7,000 employees $22 million in superannuation entitlements.2

Meanwhile, MAdE Establishment, the former MasterChef judge George Calombaris’s hospitality group, underpaid approximately 500 employees $7.8 million in wages and superannuation.3

Preventing, managing and adequately responding to employee underpayments involves a sophisticated suite of skillsets, covering legal, forensic data analytics, forensic auditing, and payroll system and application specialists.

These skillsets can be drawn upon to enable organisations to navigate the minefield that is legal privilege, interpretation of awards and EBA complexities, employee entitlement quantification, payroll audits, revised payroll controls and any legislative amendments to payroll applications. 

As public interest in employee underpayments has grown, the Fair Work Ombudsman (FWO) has become less sympathetic to an organisation’s individual or ameliorating circumstances. Indeed, FWO has been largely focused on why these underpayments took place, how many employees were affected, and whether organisations publicly communicated the incident. They have also been on the front foot in imposing enforceable actions, such as costly rectification activities, development of additional payroll processing controls, financial penalties or fines, and, in many cases, regular payroll audits to ensure ongoing compliance.

The FWO focus will naturally cause significant brand damage and financial costs for organisations caught in the cross hairs, who failed to make use of forensic compliance tools, keep up to date with legal requirements, and audit their internal systems for costly errors.

Are you at risk?

All organisations should ensure they are protected from the risk of underpaying staff, even if the company is largely made up of salaried employees. In order to mitigate the risk of employee underpayments, it is important to take pre-emptive action in a number of important areas.

To begin with, you need to assess award and EBA applicability. If you’re an employer, make sure you are aware of the applicable modern awards or enterprise agreements relevant to your industry and associated employees, including the appropriate revision you should be operating under. Don’t forget to record compliance and availability, either. Consult your payroll documentation — including rosters, employee contracts and payslips — that clearly indicate employee rates, hours worked, and entitlements. Furthermore, archive payroll records for audit purposes.

Detailed Payroll Audits or sample-based audits are recommended against high-performing or long-serving employees to ensure award or EBA compliance. They also help ensure that manual payroll calculations are completed and compared against system records, and that employee classifications are in line with award and EBA specifications.

Also ensure that payroll application specialists review complex and heavily automated payroll systems on a regular basis to keep pace with legislative changes. As minor legislative changes can have a significant and unforeseen financial impact on organisations with large workforces, it’s important not to become complacent about payroll reviews.

Whistle-blower hotlines (or equivalent) must also be available and periodically reviewed for potential employee underpayment concerns.

What if I identify an employee underpayment?

The FWO suggests the following steps in rectifying underpayments4.

  • Determine the duration of potential underpayments.
  • Determine the amount actually paid.
  • Determine what the entitlement was.
  • Calculate the difference.
  • Make a back-payment.
  • Identify the root cause of errors and implement systems to prevent another occurrence.

While these steps may sound straightforward, actually quantifying employee entitlements on historic information can be challenging due to the potential for a lack of data available, the number of EBA and/or awards applicable over the period, questions of legal entitlement, and even the data format, i.e. paper-based timesheets, to name just a few hurdles.

Organisations can also expect significant scrutiny of company calculations and expect potential legal action by a number of parties, including the staff impacted, regulatory bodies, and even a shareholder class action in the case of a listed company.

It is therefore important that organisations are well advised from a legal perspective, and make use of forensic quantification and extensive forensic data analytic capabilities.

This combination of legal and forensic analytics expertise will ensure each employee’s entitlement is accurately calculated over the relevant statutory period in a legally defensive manner, with consideration given to legal privilege, legislative changes, the organisation’s industry and the individual circumstances.

Being able to show a thorough trail of due diligence, record keeping and vigilance is vital not just for protecting your bottom line, but for your reputation, staff loyalty and customer trust.