Navigating underpayment risks: 4 ways to avoid tripping up in the #wagetheft era

Navigating underpayment risks: 4 ways to avoid tripping up in the #wagetheft era

There are four important areas employers need to monitor in order to avoid underpayment risks in the era of wage theft, as each of these areas has the potential to result in significant reputational, cultural, financial and legal ramifications, writes Natalie Gaspar

#wagetheft. It’s a pretty loaded accusation. Although there aren’t many (or indeed any?) people out there who think that it is okay for an employer to withhold wages that are properly owed to employees, some employers are still at risk of underpayment – and there is no excuse.

The crime of ‘theft’ requires deliberate intent, and while there may be some dodgy employers out there, in my experience, the vast majority of employers who come a cropper in this space would never intend underpayment of their people. They are rightfully horrified when it comes to light that there has been an error and potential wage theft.

Of course, the lack of intent doesn’t matter in the court of public opinion. Nor, in my view, should it. People should get paid properly for the work that they perform. If they don’t, the #wagetheft hashtag will be applied swiftly, and the online name-and-shame campaign will begin. Consumers may boycott, fingers may point, unions may revolt, the Ombudsman may come knocking, and workplace culture may crash.

There are so many wonderful things that good employers are trying to do to engage and retain their talented employees: mentoring programs, diversity programs, flexibility programs, wellbeing programs … the list goes on. But all of the agile working policies in the world won’t matter a jot in the case of underpayment when people aren’t receiving their legal entitlements. There’s nothing that destroys trust faster than not living up to your side of the wages-work bargain.

Stronger sanctions from the Ombudsman
Public sentiment around wage theft has been building to a crescendo following a spate of high profile underpayments that have come to light. And it’s not just the public that is taking note. The Fair Work Ombudsman (FWO) is unapologetically targeting employers who get this wrong. Gone are the days when an employer who discovered an underpayment would be left to their own devices to deal with the restoration of entitlements to its employees.

“Ignorance is simply no excuse, so employers need to have their house in order”

These days, the FWO will require employers to enter into an enforceable undertaking as a matter of course. There will be terms that require the employer to undertake a compliance audit through an independent provider engaged by the FWO – this will be in addition to, and regardless of, any independent audits that the employer may have already commissioned. Those who have experienced a full payroll audit will wince at the thought of having to do this twice. The process of extracting data – if it’s available – to demonstrate current and former employees’ working arrangements over very many years, analysing what each and every one of those employees should have been paid for working in that way, and comparing it to what they were actually paid over that time, is breathtakingly data-heavy – and, as a result, incredibly time-consuming.

In addition, the employer will likely be required to submit to ongoing audits, agree to public wording concerning the issue, make good the underpayments (plus interest), and make a ‘contrition payment’ (akin to a fine). All this in exchange for a promise from the Ombudsman to not prosecute a breach in a Court.

The risk of criminal penalties
There’s law reform in this space too. Earlier this year, the Federal Government confirmed that it would seek to legislate criminal penalties for employers who engage in the most serious and egregious exploitation of workers. Public consultation is currently taking place on a number of matters relating to such reform, including the circumstances in which underpayment of wages should attract criminal penalties, the kinds of fault elements that should apply, and the maximum penalties that would apply to both corporations and individuals.

Where can employers avoid tripping up?
Ignorance is simply no excuse, so employers need to have their house in order. But there are a number of lessons that can be learned before you trip up.

“You shouldn’t need a lawyer to tell you how to pay people properly under an enterprise agreement, but sometimes that is necessary”

Good old-fashioned human error: Unfortunately, many employers operate under terms of enterprise agreements that have been rolled-over over the years, with provisions bolted on or crudely excised through each bargaining round. The result, too often, is something not very user-friendly. The best enterprise agreements will clearly set out employees’ terms and conditions of employment. You shouldn’t need a lawyer to tell you how to pay people properly under an enterprise agreement, but sometimes that is necessary.

Incorrect classification: The other recurrent category of human error relates to incorrectly classifying employees. This might be improperly designating a part-time employee as a casual, not flowing through wage increases to junior employees on their birthdays, or designating an employee at a lower level classification than they should be under the industrial instrument. Again, you won’t get much sympathy if you get this stuff wrong. It pays to revisit these sorts of matters, and take legal advice (with the benefit of legal professional privilege) to make sure that you are getting it right.

Assuming that salaried staff are not covered by a modern award: Modern awards include minimum terms and conditions of employment. Many ‘salaried’ professional or para-professional staff are covered by modern awards, which set out rules for the payment of overtime, allowances, and penalty rates. It may be that the annual salary adequately compensates such employees for such benefits under the award in each pay period, but employers should have the checks and balances in place to ensure that is the case in order to avoid potential underpayment.

Technology mismatch: Finally, employee time and attendance systems may not necessarily speak the same language as payroll systems. Coding errors can arise, which lead to systemic payment errors. This happens more frequently than it should, and employers must put steps in place to fix these.

Proactively protect your employees and your reputation
Each of these circumstances has the potential to result in significant reputational, cultural, financial and legal ramifications. It is better to be safe than sorry in the #wagetheft era.

Image source: Depositphotos