Employment Analysis

Wage theft still amounts to big bickies despite new laws

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Food retailers have made headlines and major banks have been sued over wage theft (Image via flickr)

Accusations of wage theft in Australia are escalating, despite recent laws making it a criminal offence to deliberately underpay or withhold workers' wages, writes Ben Powers.

IF AUSTRALIA'S biggest companies can get their payroll so wrong that they’re facing claims of wage theft, then what hope does a small business owner have to navigate the increasingly complex and ever-changing arena of workplace law?

Accusations of wage theft in Australia are escalating, with a second round of litigation in fewer than six months against Coles Group highlighting the pervasive nature of the problem.

An investigation by the Fair Work Commission (FWC) found Coles had allegedly underpaid more than 7,500 workers by $115 million from the start of 2017 until March last year, just months after the supermarket chain was fined in Victoria over a failure to ensure employees received long service leave entitlements.

Woolworths has also been pinged, with a 2019 claim that it underpaid its workers by more than $300 million — having settled in October, alongside a pledge to repay $50 million to its employees.

But that’s the tip of the iceberg. More than half of Australia’s 40 public universities are facing wage theft investigations; food retailers and restaurants have made headlines, and major banks have been sued.

In 2020-21, the FWC conducted more than 4,000 investigations involving workplace disputes and a further 874 compliance activities in high-risk sectors. As a result of those investigations, the FWC was able to claw back nearly $150 million in unpaid wages for just under 70,000 workers over the financial year, a 20 per cent increase on the amount recovered in 2019-20.

But while the public discourse around wage theft generally devolves into accusations of big business ripping the little guys off, the reality facing business owners and company directors is that most underpayment issues in Australia are inadvertent.

That’s because the complexity of the legal documents that outline minimum pay rates and conditions of employment – known as awards – result in many employers unknowingly underpaying their workers. Nine times out of ten, employers are not trying to do the wrong thing, but the changes to our workplace relations system over the years has made it more complicated than it needs to be.

Typical mistakes include incorrect classification of employees and erroneous interpretations of how overtime should be calculated, with remuneration for extra hours worked one of the most complicated aspects of Australian workplace governance.

Superficially, paying an employee the correct amount for the number of hours they’ve worked seems like it should be a simple undertaking. But employers often get caught out because their payroll systems were not designed to deal with the complexity of calculating overtime payments in line with regularly changing award requirements.

In some cases, it can be a four-week rolling average calculation of overtime based on whatever the employee’s standard hours might be. By that nature, it’s quite a complicated calculation and payroll systems may not even be able to deal with that sort of complexity.

Another contributing factor is that some payroll people, internally, in a client’s business, aren’t across how those calculations should be done.

There is quite often a lot of workarounds outside of the payroll system that may not be compliant in paying employees correct amounts. How employers record time can often bring about inadvertent underpayments, with a lack of precise data around the date and time when people are working.

An example of this is a worker paid under a shift arrangement, but the timesheet system does not record the actual time of day work is being done — when that employee might have been entitled to a penalty or an overtime rate.

Getting the details right is critical for business because the repercussions of underpaying workers, even if inadvertent, can affect their ability to attract and retain staff. And if the business is customer-facing, consumers may no longer want to buy from a business that has a reputation for ripping off their workers.

There are also legal implications, highlighted by the introduction of so-called "wage theft laws" in Victoria.

On 1 July, it became a criminal offence to deliberately and dishonestly underpay or withhold wages from employees or to either falsify or avoid keeping employee records in order to obtain an advantage. Breaches are punishable by a fine of up to $218,088 or up to ten years in gaol for individuals and a fine of up to $1,090,440 for companies.

To avoid underpaying workers, employers need to be proactive in understanding changes to industry awards and how employees are classified. And to ensure compliance, legal advice should be regularly sought — it’s not just set and forget.

Companies need to have an ongoing compliance regime; a lot of problems employers have had is because payroll is something that doesn’t have oversight or historically hasn’t had oversight.

To ensure that workers aren’t underpaid, employers need to be constantly revising their payroll systems and getting advice year on year to make sure that their processes are up to date.

For smaller businesses, having the capacity to do that is a big challenge. It’s a complex world and it’s a costly exercise to go to lawyers and other professionals to sort it out.

Ben Powers is a partner with a Melbourne business advisory firm, specialising in audit and payroll compliance.

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