Underpayments – Don't become a headline!

What are the enforcement options under the Fair Work Act?

Underpayments – Don't become a headline!

Unfortunately, Australians are becoming used to waking up to the all-too-familiar headlines announcing yet another company is being prosecuted for underpayments to their workforce. It seems no particular type of organisation or industry has been immune from this issue, with both small businesses and global companies implicated.

The Fair Work Ombudsman (FWO) has recently expressed its frustration at the up-surge in large scale business admitting that they are not classifying their staff correctly, paying overtime or penalty rates, or completing annual pay reconciliations where they are required. 

Ombudsman Sandra Parker recently made this statement: “Each week, another large company is publicly admitting that they failed to ensure staff are receiving their lawful entitlements. This simply is not good enough. Companies will be held accountable for breaching workplace laws. Companies and their Boards are on notice that we will consider the full range of enforcement options available under the Fair Work Act, including litigation where appropriate.”

So what are the enforcement options under the Fair Work Act?
Under the Fair Work Act’s civil remedy provisions, an employer can be penalised or fined by a court if the court determines they have broken a workplace law. The FWO can embark on a range of processes and enforcements options for these kind of offences including:

  • Workplace investigations – this includes the power of the FWO to apply to the Administrative Appeals Tribunal for a Notice on a company or person to produce information. Non-compliance with such a Notice will result in penalties of up to $126,000 (individual) and $630,000 (company).
  • Compliance notices
  • Infringement notices – this is an on-the-spot fine of $1,260 (individual) and $6,300 (company) issued per breach.
  • Compliance partnerships – companies can enter into Proactive Compliance Deeds with the FWO and outline steps both parties will take to ensure the companies are compliant with workplace laws. They usually continue for a 2-3 year period.
  • Enforceable undertakings – this is an alternative to litigation.
  • Litigation – this is generally a last resort when other options have failed. The FWO will not only take a company to court, but any persons whom it believes played a relevant part in the alleged contravention. This might include a company director, HR manager, accountant or a business involved in the supply chain. Court orders that result from successful litigation may include penalties of $12,600 (individual) and $63,000 (company) per contravention. Serious contraventions will attract up to $126,000 (individual) and $630,000 (company) per contravention.

In the 2017/2018 year, the FWO entered into eight enforceable undertakings with employers and the number of these doubled in the 2018/2019 year. Copies of these undertakings are all published on the FWO website.

The FWO’s reports show that it commenced 52 separate litigation proceedings against employees in the 2017/2018 year and 36 separate litigation proceedings against employees in the 2018/2019 year. All of this litigation relates to some form of underpayment to employees, whether through failure to pay penalty rates, sham contracting, failure to keep records, unreasonable overtime or otherwise.

The FWO has indicated that large companies admitting to underpayments will be required to, at a minimum, enter into court-enforceable undertakings.  This will involve multi-year external audit plans, training programs, contrition payments and a condition to publicly apologise to the community.  If co-operation to do so is not secured from the company, the FWO will consider litigation. 

Small business will also be issued statutory compliance notices which are not punitive and do not constitute an admission of guilt, but focus instead on rectifying any underpayments and educating business owners.  If the business does not comply, they will be issued with a warning and an opportunity to give a reasonable excuses for their non-compliance and failing that will be taken to Court with the FWO seeking a penalty for the failure to comply with the notice and the original contravention. 

While many companies have self-reported their underpayments, the authorities have been quite clear that while the FWO takes into account self-disclosure as a mitigating factor in underpayment cases, it does not absolve those companies for breaching workplace law and consequences will flow.

It is imperative that business and companies set up an effective system that ensures the following issues are regularly reviewed:

  • Know your workforce! Who is covered by an award? Which award(s)? Who is covered by an Enterprise Agreement? Who is covered by contract and paid a salary? Who is permanent? Who is casual? Are they truly casual?
  • Be familiar with the various employment classifications in the relevant awards that cover your workforce as well as any other type of pay changes such as when junior or apprentice rates change.  A senior staff member should be tasked with the responsibility to diarise in a calendar when employees are likely to need an increase in their pay, such as birthdays or yearly apprenticeship progression. 
  • Likewise, are your salaried staff’s wages at least equivalent to the minimum wage, reasonable overtime and NES entitlements? If they are not regularly reviewed and they fall under the total minimum wage rate plus entitlements, your company will be underpaying them.
  • Regularly conduct self-audits to ensure your company is compliant with payment of wages, overtime, penalty rates and superannuation. 
  • Keep up to date with future wage increases by subscribing to regular updates from the Fair Work Commission on the annual minimum wage increases. 
  • Seek regular advice from an employment lawyer to ensure that your workforce is being properly paid and if underpayments are identified, engage an accountant to make the calculations.

The key to mitigating damage to your company’s reputation and relationship with your workforce is to fix the past underpayment quickly and ensuring it is correct for the future. 

If your company has noticed the underpayment and has fixed it proactively, it is not necessary to report it to the FWO, but it is necessary that you record it. However, if the FWO becomes aware of the underpayment (for example if a complaint is made by an employee and the FWO decides that the matter involves various serious issues and/ or is in the public interest), the FWO may choose to investigate even when the affected employees have been back paid.

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