PAYROLL SERIES | PART 1: Getting Payroll Right From The Start
The Fair Work Ombudsman (“FWO”) continues to focus on investigating and enforcing underpayment offences.
Over the last two financial years, the FWO has recovered nearly $1 billion in unpaid wages and entitlements.
While sometimes sensationalised as “wage theft”, suggesting perhaps sinister and deliberately fraudulent conduct, we observe that it is more often the case that employers find themselves dealing with inadvertent payroll errors which can unintentionally (and sometimes quickly) cause extensive risk and liability.
Notably, the FWO has recently cautioned: “Our investigations and enforcement actions send a clear message – all employers must place a higher priority on ensuring they are meeting all their workers’ lawful entitlements, including by improving their payroll and governance and investing in advice.”
With all of this in mind, it has never been more important for employers to ensure that their payroll systems are compliant with applicable workplace laws and industrial instruments.
In this series of insights, we will look at several recent underpayment matters and present our practical tips for ensuring that your organisation’s pay practices are compliant.
This first insight will focus on what to look out for when setting up and maintaining a payroll system in order to avoid compliance issues.
Calvary Administration Pty Ltd
In late 2023, the FWO announced that it had entered into an Enforceable Undertaking (“EU”) with Calvary to resolve a significant underpayment.
Calvary had self-disclosed more than $2.1 million in underpaid wages between April 2018 and May 2020.
The underpayments were mainly caused by an incorrect penalty rate being applied to ordinary hours worked on Sundays. This error arose due to an external payroll provider incorrectly setting up Calvary’s payroll system with a 150% penalty rate instead of 160% (as required by the applicable enterprise agreement).
Calvary committed to (amongst other things) back-paying the affected employees, making a contrition payment of $10,000 to the Commonwealth and implementing – at its own cost – an independent audit regime to ensure continued compliance over the next two years.
This all meant that Calvary avoided facing formal Court proceedings.
Courts are at liberty to impose significant financial penalties on employers who underpay their employees, currently set at $93,000 per breach by a body corporate and $18,780 per breach by an individual involved in a contravention. These figures are subject to a ten-fold increase if a contravention is considered “serious”.
Key Take Aways
The Calvary matter highlights how seemingly minor payroll system setup errors can create large underpayment liabilities.
To avoid situations like this arising in your organisation, consider:
Investing in and properly configuring a comprehensive payroll system that can handle complex industrial instruments and pay rules.
Carefully checking that your pay rules accurately capture the instrument’s requirements. This may involve careful consideration of (and in some instances, advice on) clauses which may be open to multiple interpretations.
Regularly checking that your pay rules are accurate and up to date. This includes monitoring and implementing any amendments to the applicable underpinning award or instrument – that is, you must not adopt “set and forget” approach to your payroll system.
Fostering a culture in your HR/payroll team where staff feel comfortable to come forward to management if they identify any potential pay issues.
Taking action quickly if any payroll errors are identified to avoid underpayments accumulating.
Cowell Clarke is pleased to offer its RemCheck service to organisations that wish to obtain peace of mind by confirming their payroll compliance. Our Employment & Workplace Relations Team can also provide advice should you have any queries or concerns. Please contact Cassie Burfoot, Director, or Emily Gray, Senior Associate, for further information.