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PKF Australia

Accountants and Business Advisers

Wage Underpayment in Australia

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Tom Lesnikowski

Principal

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Wage Underpayment in Australia

Underpayment of wages or as it is more commonly referred to by the media, “wage theft”, has become a pressing issue in the Australian economy and community in recent years. Some commentators have described it as a being a commonplace business model.

Most recently supermarket giant Woolworths has admitted to underpaying staff by as much as $300m over a period of up to 10 years. Woolworths is not the only large corporate to confess to underpayment of wages. Others include the ABC, Bunnings, Super Retail Group, Commonwealth Bank, Rockpool Dining Group and even the 2018 Commonwealth Games – the list goes on.

What Characterises Wage Underpayment

Wage underpayment is not just limited to incorrectly paying ordinary wages or earnings but can extend to a variety of entitlements such as penalty rates for overtime, superannuation obligations, leave entitlements, allowances, meal and other breaks, commissions and other employment benefits.

Employer Obligations

It goes without saying that employers have a legal obligation to pay their employees in the correct manner. Those obligations come about as a result of Federal, State and Territorial laws, Employment contracts, Awards, Industrial Agreements and decisions handed down by workplace tribunals.

It is important for all business owners to have a thorough understanding of the basis on which their staff are employed and more importantly the systems and procedures that are in place with the records necessary to accurately reflect and calculate rates of pay and all entitlements. These systems should be regularly tested along with random audits to ensure ongoing compliance with your obligations as an employer.

The Fair Work Ombudsman can seek to prosecute companies and individuals for breaches of the Fair Work Act “the Act”. In a recent decision, the following penalties for failure to pay correct wages and maintain adequate records were imposed:

  • $200,000.00 against the corporate entity;
  • $30,000.00 against the company’s sole Director; and
  • $13,000.00 against the company’s Operations Manager.

As can be seen from the penalties above, the penalty for breaching workplace law can extend to third party individuals if they were involved in the contravention of the Act.

Business Effect

Business success comes from many sources and it is no secret that an engaged and happy workforce will drive increased productivity and therefore overall returns to owners and investors alike. Paying correct wages and entitlements is one of many components of an engaged workforce.

Employers need to also consider the cash flow cost of not correctly paying employees – recently Made Entertainment Group was required to pay staff $7.8m which represented underpaid wages and superannuation contributions. Payments of this magnitude may bring into question the financial capacity and resources of an organisation faced with a similar scenario.

A business’ reputation is one of its greatest assets and can be severely damaged by being associated with activities and practices that break the law and do not meet community expectations. Many of the entities that have been reported in the media recently for wage theft have and will suffer reputational damage for some time to come.

What to do next

If you have any doubts about meeting your obligations as an employer contact your local PKF office to discuss your circumstances and the systems and processes that you have in place.

Underpayment of wages or as it is more commonly referred to by the media, “wage theft”, has become a pressing issue in the Australian economy and community in recent years. Some commentators have described it as a being a commonplace business model.

Most recently supermarket giant Woolworths has admitted to underpaying staff by as much as $300m over a period of up to 10 years. Woolworths is not the only large corporate to confess to underpayment of wages. Others include the ABC, Bunnings, Super Retail Group, Commonwealth Bank, Rockpool Dinning Group and even the 2018 Commonwealth Games – the list goes on.

What Characterises Wage Underpayment

Wage underpayment is not just limited to incorrectly paying ordinary wages or earnings but can extend to a variety of entitlements such as penalty rates for overtime, superannuation obligations, leave entitlements, allowances, meal and other breaks, commissions and other employment benefits.

Employer Obligations

It goes without saying that employers have a legal obligation to pay their employees in the correct manner. Those obligations come about as a result of Federal, State and Territorial laws, Employment contracts, Awards, Industrial Agreements and decisions handed down by workplace tribunals.

It is important for all business owners to have a thorough understanding of the basis on which their staff are employed and more importantly the systems and procedures that are in place with the records necessary to accurately reflect and calculate rates of pay and all entitlements. These systems should be regularly tested along with random audits to ensure ongoing compliance with your obligations as an employer.

The Fair Work Ombudsman can seek to prosecute companies and individuals for breaches of the Fair Work Act “the Act”. In a recent decision, the following penalties for failure to pay correct wages and maintain adequate records were imposed:

  • $200,000.00 against the corporate entity;
  • $30,000.00 against the company’s sole Director; and
  • $13,000.00 against the company’s Operations Manager.

As can be seen from the penalties above, the penalty for breaching workplace law can extend to third party individuals if they were involved in the contravention of the Act.

Business Effect

Business success comes from many sources and it is no secret that an engaged and happy workforce will drive increased productivity and therefore overall returns to owners and investors alike. Paying correct wages and entitlements is one of many components of an engaged workforce.

Employers need to also consider the cash flow cost of not correctly paying employees – recently Made Entertainment Group was required to pay staff $7.8m which represented underpaid wages and superannuation contributions. Payments of this magnitude may bring into question the financial capacity and resources of an organisation faced with a similar scenario.

A business’ reputation is one of its greatest assets and can be severely damaged by being associated with activities and practices that break the law and do not meet community expectations. Many of the entities that have been reported in the media recently for wage theft have and will suffer reputational damage for some time to come.

What to do next

If you have any doubts about meeting your obligations as an employer contact your local PKF office to discuss your circumstances and the systems and processes that you have in place.


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