Wage Wars – Underpayment may become a crime

WHO SHOULD READ THIS

All employers, human resource managers and in-house lawyers who manage payroll functions, employee entitlements, and recruitment.

THINGS YOU NEED TO KNOW

Wage theft is a key focus area for the Fair Work Ombudsman. Employers should be aware of back payment requirements and possible penalties.

WHAT YOU NEED TO DO

Employers must ensure that employees (current and former) receive all relevant pay rates and entitlements in accordance with the Fair Work Act 2009 (Cth) (FW Act), any modern awards and enterprise agreements. 

Wage Theft Series

The first publication in our Wage Theft Series will focus on what wage theft means, the most common underpayments, and action and sanctions that can be imposed by the Fair Work Ombudsman (FWO).  Our Wage Theft Series is designed to provide employers with guidance on wage theft including lessons from FWO cases, advice on responding to FWO investigations and commentary on possible future regulation in this area. 

Background

The colloquial use of the term ‘wage theft’ has become increasingly popular in the workplace relations landscape.  A term first used by unions, ‘wage theft’ is now commonly used to describe a failure to pay workers’ correct wages and entitlements. 

The Fair Work Ombudsman (FWO) has been clear in its approach to countering alleged ‘systemic wage theft’ in a number of industries throughout Australia, including the retail, hospitality, agriculture and construction sectors.  According to the FWO, the ‘fast food, restaurant and café sector has accounted for more disputes than any other industry during the last six years’. 

This week, Coles and Target are the latest in a line of retailers to admit to having underpaid employees.  Last week, the hospitality empire of celebrity chef George Calombaris received a further blow with MADE Establishment Group appointing an administrator and some restaurants and outlets closing their doors immediately.  This comes just seven months after MADE Establishment entered into an enforceable undertaking with the FWO relating to identified underpayment issues.

The Attorney General, Christian Porter, has publicly condemned instances of wage theft and has said that he will seek to introduce legislation within weeks to criminalise the underpayment of workers.  The Attorney-General’s Department has released a discussion paper and commenced public consultation on the operation of the current compliance and enforcement framework relating to the protection of employees’ wages and entitlements.

What is wage theft?

Wage theft is not confined to a particular industry or type of business. However, employers have faced problems applying the full scope of applicable modern award terms in industries where employees work irregular hours, there are an array of classifications set out under complex modern awards, and where there is a tradition of a ‘one-size-fits-all’ flat rate of pay. 

Most common underpayments

The most common wages or entitlements that employers incorrectly pay when applying modern awards include the following:

• Minimum rates of pay for ordinary hours;
• Minimum engagement hours, and any broken shifts;
• Casual loading (if the employee is a casual employee);
• Penalty rates and overtime (such as afternoon, evening shifts, Saturday, Sunday and Public Holidays);
• Meal and rest breaks (paid or unpaid);
• Allowances (such as meals, laundry, travel, split shifts, cold work, tools and equipment or special clothing);
• Annual leave loading; and
• Leave (annual, sick leave, public holidays, compassionate leave or family and domestic violence leave).

Employers must take care to pay all relevant rates and entitlements in accordance with an individual’s employment status (full-time, part-time, and casual) and their job classification under the applicable modern award, based on their experience and daily duties.

Additionally, a number of record keeping obligations exist under the Fair Work Act 2009 (Cth) (FW Act) and a failure to adhere to the record keeping obligations can make it harder for an employer to demonstrate that they have paid their employees correctly and lead to further penalties.  As well as keeping general employment records with respect to employees’ start date, employers must keep sufficient records concerning pay records (rate of pay and details of loading and penalty rates), hours of work records, leave records, superannuation contribution records and termination records.

Pay slips must be issued to each employee within one working day of payday (even if the employee is on leave) and in electronic or hard copy form and employee records must be kept for seven years.

It is critical for employers to undertake payroll audits and reconciliations, and ensure that supervisors and managers receive training on the terms of applicable modern awards.  

If at any time an employer identifies that an employee has been underpaid (or there has been a shortfall), this must be paid back to the employee within fourteen days.  All back payments must be recorded in the employee’s pay records.

FWO action and sanctions

As well as seeking full rectification for underpayments, the FWO regularly seeks superannuation and interest from employers on behalf of current and former employees.  Serious contraventions can also lead to large penalties, together with possible bankruptcy for directors and voluntary administration. 

In 2018-2019, the FWO reclaimed $40.2 million for around 18,000 workers who were underpaid their wages, but for some employers backpaying employees may not be the only consequence of non-compliance.

As the term suggests, ‘wage theft’ is a form of unlawful activity.  Failure to comply with obligations under the FW Act including compliance with a term of a modern award will amount to a breach of a modern award and may attract civil penalties under the FW Act. Currently, the maximum penalty for a breach of the civil remedy provisions is $63,000 for a corporation and $12,600 for an individual, and for serious contraventions, $630,000 for a corporation and $126,000 for an individual.  

For further information, please get in touch with our Employment Relations and Safety team below.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.