Handling Employee Underpayments

When faced with scandals, particularly those relating to employee underpayment, some companies do the right thing immediately and some wait until the appropriate juncture and resolve matters in the fullness of time.

The worst offenders are responsible for significant legislative amendment to the Fair Work Act which has resulted in increased levels of investigation by the Fair Work Ombudsman's office across Australian businesses and spread liability far and wide. Section 550 of the Fair Work Act is a big bat that can hit everybody involved, even if remotely.

Accessorial liability

We are in a new era of accountability in which organisations and the actions of their suppliers are linked. Turning a blind eye or pleading ignorance is no defence. Recent prosecutions by the Fair Work Ombudsman ("FWO") have resulted in an expanded view to include accountants, bookkeepers, clients, and franchisors being responsible for the failures of a principal to pay their employees appropriately.

Non-compliant businesses, directors and accessories were penalised over $4.8 million in 2016-2017 according to the FWO Annual Report. This is a 66% increase on the total penalties ordered in 2015-16 ($2.9 million).The increase in penalties reflect a significant increase in compliance audits by the FWO.

Don't handle a problem like this

7-Eleven made news after the Ombudsman launched proceedings against a number of its franchisees for systematically underpaying their employees and attempting to conceal the underpayments. As a result of these actions, seven matters were filed before the Federal Circuit Court, one Enforceable Undertaking was made, 20 Letters of Caution were issued, 14 Infringement Notices were issued, three Compliance Notices were issued and over $293,500 was recovered for workers.

However, the FWO was not able to establish that 7-Eleven as head franchisor was liable for the breaches of its franchisees as it could not prove that 7-Eleven was "knowingly concerned" in the breaches. 7-Eleven nonetheless faced a deluge of adverse publicity and recently entered into a 3 year compliance deed as the "most robust and comprehensive that any franchise brand has in place in Australia". This deed imposes onerous obligations on 7-Eleven including biometric time recording, electronic wage payments, and a suite of strengthened auditing and compliance measures such as hotlines, facilitating FWO access to franchises and an internal investigation unit.

Could have done better, earlier

2017 was a difficult year for Dominos pizza. They made a high net profit, but suffered share price losses, and the CEO admitted that approximately 2500 employees had been underpaid through its franchise network. Such underpayment had been going on for years and with no oversight by the franchising parent. This has resulted in those employees being paid over $5.5 million in backpay.

Further adding to perception issues is that it has been recently reported that Domino's Pizza boss Don Meij has become Australia's highest paid chief executive, earning $36.84m last year. Analysis by the Australian Council of Superannuation Investors found Meij surpassed Westfield's Peter and Steven Lowy on a combined $25.9m, and Macquarie's Nicholas Moore on $25.19m. Council chief executive Louise Davidson said "at a time when public trust in business is at a low ebb and wages growth is weak" the top bosses pay was "especially tone deaf."

Owning the issue. Respect!

The cosmetics company Lush has launched a $2 million backpay scheme after admitting it underpaid as many as 5,000 employees. The payroll error dates back to 2010 and affects both retail and manufacturing staff. Lush Australia director Peta Granger publically stated the error was a result of failing to update the company's payroll infrastructure and was not intentional.

"What has become alarmingly clear to us is that our internal payroll systems have not kept pace with our growth," Ms Granger said.

"It was irresponsible to imagine that such a manual and outdated system could work for a business of our size.

"We are sincerely sorry for letting our staff down so badly."

"We hope that they can forgive us for this monumental mistake."

Those honest and upfront admissions along with stating that the company will immediately implement corrective measures are part of complete ownership of an issue and should be positively recognised.

Wage Compliance

Errors occur, but staying out of trouble when paying wages can be kept relatively straightforward:

1. Find and pay at least the minimum rates of pay under the terms of an appropriate modern Award. Employers need to remember they are liable for underpayment if they do not pay for overtime, penalty rates, and allowances, not just incorrect minimum hourly rates.

2. Be very careful when seeking to alter the application of Award terms in a workplace. Seek advice on your options.

3. Provide payslips to each employee outlining what they have been paid and the relevant rates of pay.

4. Keep records of those payments on file for seven years (electronically is fine).

5. Don't set and forget payroll software. Audit payroll systems periodically and any changes to wages and entitlements arising throughout the year need to be undertaken and reported on via a centralised person in the company.

6. Mistakes and errors can occur, but own them when once they are realised.

Author: Charles Watson, General Manager HR at Workforce Guardian

19/07/18

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