PAYROLL SERIES | PART 2: Oops! You’ve Identified An Underpayment – Now What?
In part one of our series on underpayment risks and payroll compliance, we looked at a recent Enforceable Undertaking (“EU”) entered into by Calvary Administration Pty Ltd and set out some strategies to assist employers to ensure that their payroll system is setup correctly at the outset.
But what happens if it’s too late and you identify a payroll error?
Here we examine some recent matters investigated by the Fair Work Ombudsman (“FWO”) to glean insight into the regulator’s approach to such matters, and in turn, how an employer might respond.
Aruma Services Limited
In this matter, Aruma Services and its staff were covered by an enterprise agreement.
An underpayment of approximately $6.5 million was self-disclosed by the business to the FWO in June 2021 following a self-initiated review.
The underpayment arose due to Aruma Services not paying part-time employees their minimum fortnightly hours, failing to roster and pay employees for at least four hours of work immediately before and/or after a sleepover, and missing overtime payments for employees who worked more than six consecutive days without a 24-hour break.
These compliance issues were said to be materially the result of an incorrect configuration and interpretation of the employer’s enterprise agreement within its payroll system.
Given that the underpayment was self-disclosed and Aruma Services cooperated with the FWO, an EU was considered appropriate in the circumstances, and so the business avoided formal litigation for its underpayment breaches.
Brownport Almonds Pty Ltd
Following the FWO receiving a request for assistance from an employee of the business, the FWO undertook an investigation which found that Brownport Almonds had been misclassifying workers under the Horticulture Award 2020.
This led to Brownport Almonds undertaking a payroll review, through which it determined that over a five-year period, the business had underpaid its employees a total of $505,511 arising from the misclassification issue, as well as the payment of a flat hourly rate which was inadequate to cover all applicable minimum award entitlements, including overtime and penalty rates.
As part of an EU (which was viewed by the FWO as an appropriate remedy in this case due to the cooperation of the business and its commitment to rectifying the underpayment), Brownport Almonds agreed to make a $50,000 contrition payment to the Commonwealth to resolve this matter.
Best & Less Pty Ltd
In this case, the retailer self-disclosed $5.2 million in underpaid wages.
The self-disclosure to the FWO in December 2020 came after an internal review identified that the annualised salaries paid to Best & Less’ store managers and assistant store managers were insufficient to cover their minimum entitlements under the General Retail Industry Award 2020 in relation to allowances, penalty rates, overtime and annual leave loading.
Despite the large monetary value of the self-disclosure, Best & Less’ cooperation throughout the investigation, paired with its commitment to rectifying the issue and preventing future contraventions, contributed to the FWO accepting that an EU was an appropriate resolution in the circumstances.
Key Take Aways
As the above examples have illustrated, the approach of an employer upon uncovering an underpayment is a key factor for the FWO when deciding what action to take in relation to alleged contraventions of workplace laws.
It is clear that a proactive commitment to rectifying underpayments and ongoing payroll compliance is viewed favourably by the FWO.
The above cases also illustrate some common payroll errors as follows:
Obligations with respect to part-time employees’ hours and overtime provisions are often misunderstood and have the potential to create significant underpayment liabilities if left unchecked.
Care should be taken to properly classify workers whose employment is underpinned by an award or other industrial instrument. Regular checks can assist to ensure that classifications remain current.
Overtime provisions are often complex and involve intricate triggers that differ between instruments. Ensuring that overtime clauses are interpreted correctly and applied properly will assist with reducing the risk of underpayment liability.
When paying employees a flat hourly rate (or annualised salary), care must be taken to ensure that (a) such an arrangement is permitted under the relevant industrial instrument and if so (b) the rate is adequate to cover all minimum entitlements the employee would otherwise receive under the instrument.
If your organisation has identified a potential underpayment, you might consider the following:
Undertaking a payroll review to fully understand the scope of any potential compliance issues – Cowell Clarke’s RemCheck service can assist with this.
If you have a confirmed underpayment, you should determine why it has occurred, how it can be rectified, and what measures can be implemented to prevent it from happening in the future. Further, depending on the circumstances and following legal advice, self-disclosing to applicable bodies, including the FWO, may be appropriate.
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