'When employees are entitled to overtime payments or shift allowances, penalty rates for weekends — that's when you're more likely to fall into a trap'
There have been several recent cases of Australian businesses revealing that they have underpaid their workers — from BHP admitting it underpaid current and former employees around $430 million to the Reserve Bank of Australia apologising to employees after it underpaid more than 1,000 staff by an undisclosed amount.
But there are steps employers can take to reduce the likelihood of underpaying their staff.
Joellen Riley Munton, Executive Counsel at Harmers Workplace Lawyers, told HRD Australia that while there are some cases where an employer deliberately commits wage theft, in other cases, staff underpayments are the result of payroll inaccuracies.
“What we've been seeing lately are a lot of big, otherwise very responsible, employers discovering themselves that their payroll systems have had inaccuracies in them and alerting the Fair Work Ombudsman and trying to negotiate a solution to that themselves,” she said.
Flexible arrangements challenge payroll
Underpayment issues can also arise when there is a gap between national guidelines and the arrangements a particular company may have.
“The problem is there are entitlements in what we call the National Employment Standards, which are fixed in stone,” Riley Munton said. “And sometimes the kind of flexible arrangements that employers put in place effectively have a gap – don't comply fully with those,” she said.
In the case of BHP’s underpayment revelations, Riley Munton believes one of the issues was how mining workers often operate under fly-in fly-out 12-hour shift rotations, which can create complications particularly around public holidays.
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“If [an employee says], ‘I don't want to work on the public holiday’ they can have the day off,” she said. “But [BHP had] been deducting that as part of their annual leave allowance, treating it as if they were taking annual leave, when in fact you've got a right to take a public holiday off on full pay anyway.
“So they are estimating that treating public holidays for these kinds of workers in this way, rather than in a way that is strictly compliant with the Fair Work Act, was effectively deducting about six days of paid leave from each of those workers over those years. So you can see how that builds up into a big number.”
Records, audits help with payment accuracy
To ensure workers are paid appropriately, human resources teams should keep very careful records of who was working, what hours they worked and what rate of pay applies, Riley Munton said. It’s also important for them to ensure proper communication with line managers to remain compliant.
“In large organizations, the HR function is one thing but they need to communicate down to those line managers and supervisors who are in fact keeping an eye on who is working which hours and make sure that they understand how important it is that there's accurate record-keeping,” she said.
To further identify the potential of underpaying staff, employers should periodically get an independent organisation to do an audit of their payroll systems.
“Payroll systems these days can be automated in software – they need to be kept up to date. And if they're not operating correctly, it needs to be picked up in time to correct things,” she said.
“I don't think you'd be finding these problems if these mistakes were being picked up quickly and remedied relatively quickly.”
An audit is particularly useful if an employer operates a business “where you've got people on awards working rotating shifts or irregular kinds of hours,” Riley Munton said.
“It's when your employees are entitled to overtime payments or shift allowances, penalty rates for weekends — that's when you're more likely to fall into a trap.”
How should HR respond if workers are underpaid?
If an employer finds out that it has been underpaying staff, it will always be required to pay back what it owes.
“The best thing is to get on the front foot and work out properly what the problem is and make arrangements to make those back pay payments,” Riley Munton said.
“Much better than to think ‘Oh look well, let's just hide this and wait until somebody finds out’. Because there are civil penalties for underpayment and there are multiplications of the civil penalties for what's called a serious contravention and a serious contravention is one that you are aware of or recklessly indifferent to and have not done anything to address. So you don't want to be in the situation where your actions have attracted those serious contravention penalties.”
Currently, wage theft is a criminal office in Victoria and Queensland. In both states, perpetrators could face up to 10 years in prison. And the Department of Employment and Workplace Relations has also released a consultation paper that looks at criminalising wage theft nationally.
“I'm sure that an HR manager who has thought, ‘I'm doing the company a favour by setting up the payroll system to minimise payroll and then I'm just going to keep that quietly to myself’. I'm sure they don't want to go to prison for that kind of misplaced loyalty to the employer. So it really is very important that people act properly,” Riley Munton said.