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PKF Australia

Accountants and Business Advisers

Professional services: are you doing enough to protect yourself from wage underpayment?

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Baidy Laffan

Partner

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Professional services: are you doing enough to protect yourself from wage underpayment?

The last week has seen a dramatic escalation in Australia’s wage underpayment epidemic as Coles and Target become the latest major corporates to report multimillion-dollar underpayments. The difference is that this time the underpayments are affecting salaried staff.

Now the professional service industry has emerged as the next industry to face the scrutiny of the Fair Work Ombudsman.

The Fair Work Ombudsman, Sandra Parker, has squarely placed the responsibility for addressing this issue on Chief Executives and the Board saying:

 “I am calling on boards to seek assurances from their chief executive officers that wages are being paid to employees in accordance with the law. The buck ultimately stops with the chair.”

This latest development has created increased focus with the Attorney-General, Christian Porter, expected to introduce a bill to Parliament in the coming weeks to criminalise the serious underpayment cases. This bill proposes to:

  • Ban company directors that fail to prevent wage underpayment in their businesses from sitting on boards; and
  • “Name and shame” businesses that are found guilty of wage theft.

Am I at risk?

As of 1 March, the new rules covering annualised salaries will come into place affecting a number of Awards, including those within professional services(1):

  • Banking, Finance and Insurance Award 2010
  • Clerks – Private Sector Award 2010
  • Contract Call Centres Award 2010
  • Legal Services Award 2010
  • Local Government Industry Award 2010
  • Health Professionals Award 2010

What are the changes?

These awards have always included the requirement to ensure that an employee’s salary is not less than what they would receive under the award. However, the key changes for employers under the three new modern award annualised wage terms will see an:

  • Increase in record-keeping requirements for documenting annualised salary agreements; and
  • Increase in the rigour of the annualised salary calculation. Businesses are now required to calculate the annualised wage using detailed assumptions regarding overtime which the employee may be required to work and specify the “outer limits” of ordinary hours and overtime hours that are satisfied by the annualised wage.

What does this mean?

There are significant new obligations for employers as a result:

  • Annualised salary agreement: record in an agreement the provisions of the award which are satisfied by the annualised wage, and in some cases record the method by which the annualised wage has been calculated.
  • Record assumptions: record the key assumptions of the wage including overtime or penalty assumptions, and the “outer limits” on overtime hours or other penalty-rate hours which are included in the salary;
  • Additional pay: make additional payment to an employee for hours worked that exceed those assumptions. These additional payments must be paid in the relevant pay cycle for the additional hours worked.
  • Record keeping: keep records of the start times and unpaid breaks for each employee and have employees sign or acknowledge the record in the pay cycle.
  • Review: each year the employer must calculate the amount which would have been payable to the employee under the modern award and compare this against the annualised wage arrangement. If a shortfall is identified, employers must rectify any shortfall within 14 days.

What can I do to minimise the risk?

  • Ensure that you have a process for monitoring changes to modern awards;
  • Determine whether any of your employees are covered by the affected awards;
  • Ensure you have processes in place to support the preparation and calculation of annualised salary agreements, appropriate record-keeping and a thorough annual reconciliation; and
  • In the event of underpayment being identified, you may need to consider any retrospective impact.

What to do next?

If you are not sure where to start or are looking for a partner to help you navigate this process, get in touch with PKF to see how we can provide you comfort and clarity in your compliance.

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