Underpayment of Wages - An Issue To Be Avoided

INDUSTRIAL RELATIONS

COMPLYING WITH CORPORATE OBLIGATIONS

WAGE THEFT

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MBA NSW | Issue Two | April-June 2020

COMPLYING WITH CORPORATE OBLIGATIONS

INDUSTRIAL RELATIONS

UNDERPAYMENT OF WAGES – AN ISSUE TO BE AVOIDED

nderpayment of wages is not a new phenomenon. However, the recent proliferation of what is being called wage theft, is occurring across a range of occupations, labour market segments and business models.

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Employers who underpay workers could be forced to name and shame themselves with public signs admitting their wage theft as part of industrial relations reforms Attorney-General Christian Porter is considering.

Businesses which fail to prevent wage underpayment could also be banned from hiring migrant workers for a period of time, and company directors disqualified from holding office.

Over the past 12 months, an embarrassing list of large corporations have been caught up in wage theft scandals. Dozens of Australian employers have admitted to shortchanging their workers. Australian supermarket giants Coles, Woolworths, discount chain Target, Commonwealth Bank, Bunnings, Wesfarmers and Super Retail Group have all joined the wall of shame. They are publicly prosecuted for underpaying their employees, resulting in millions of dollars’ worth of back payments and fines.

Recent developments have suggested several industries in the telecommunications, aged care, disability care and manufacturing sectors are also contending with their wage theft issues.

They have found itself on the wrong side of reporting underpayments to employees.

Based on data from the Fair Work Ombudsman, PricewaterhouseCoopers estimates Australian workers are underpaid $1.35 billion each year, affecting 13 per cent of the total workforce. In high-risk sectors, 21 per cent of the workforce is affected.

That means that overall, one in seven workers are not getting their wages, penalty rates, superannuation, overtime, and entitlements such as sick or annual leave paid correctly.

In high-risk sectors, this happens to about one in five workers.

The root causes for such occurrences often vary. Typically, they range from an ignorance of the law to a lack of awareness, the incorrect interpretation of awards and an overly complicated Industrial Relations system. The rather distinct common denominator suggests the cause is linked to payroll setup.

Incorrect payroll setup can occur via a handful of different areas. We have classified the main ones below: • Incorrect information flowing from HR (Classifications/Agreements etc.), • Wrong initial payroll system setup, • Legacy payroll software making calculations challenging to administer, • Set and forget mentality in payroll departments.

Payroll System Setup An organisation payroll system setup is the foundation of its payroll processing, getting that wrong could land an organisation into trouble.

For example: • Pay codes: Pay codes determine entitlements, tax, super, and in most cases, payroll tax liability, and Single Touch Payroll (STP) reporting. Common areas for errors include when to use categories as ordinary hours, associated accruals or Superannuation Guarantee Contributions (SGC) to those categories and when something is considered an allowance. Similarly, whether allowances are subject to SCG and more recently, STP reporting rules are often incorrectly setup.

• Deductions/back payments: These have a direct impact on employee’s taxable earnings, Single Touch Payroll (STP) reporting and tax amount. As we know, deductions can be before or after-

tax, and specific rules surrounding the treatment of deductions/back payments that should not be ignored.

• Leave code/category: They determine the accrual rate and entitlement period. The leave code/ category should at least meet the national minimum standards or state/territory minimum for Long Service Leave (LSL).

Correctly determining whether a leave category is paid or unpaid is a common oversight.

If a payroll system setup is non-compliant, it could lead to inaccurate leave accruals, superannuation errors, under/overtaxing employees, not meeting the organisation’s company payroll tax or reporting obligations, among others.

In the long run, rectifying these errors will cost organisations money, resources and reputation.

A set and forget mentality in Payroll departments is not a good excuse It is not uncommon for a modern award to be updated at least twice in a calendar year.

Therefore there is a need for additional vigilance within HR and payroll departments on an ongoing basis with regards system setup.

Organisations need to implement a checklist: • “When was the last time the organisation carried out a system check on the payroll system?”

• “Has the organisation recently gone through systems migration and did not sign off on the setup?”

• “Is the organisation’s payroll system up to date with changes?”

• “Does the organisation need to review its payroll process?”

Undertaking System Checks If you are not a hundred per cent confident your payroll system setup is compliant or has the functionality required to process your payroll; Issue Two | April-June 2020 | MBA NSW

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COMPLYING WITH CORPORATE OBLIGATIONS

we highly recommend running a system health check.

If you do not feel confident you have the expertise inhouse to perform a payroll system audit, we recommend reviewing the following useful tips:

Employers are required to keep several records relating to the employment of an employee, such as payments made to employees and hours of work.

Other records employers are required to keep include details such as;

INDUSTRIAL RELATIONS

the opportunity for payroll mistakes and underpayments.

Requirements For Employee Records An ‘employee record’ for the purpose of the FW Act includes a record of personal information relating to the employment of an employee, including:

If you are looking at implementing a new payroll system;

• industrial instrument coverage;

• Engaging a payroll expert removes risk and is an affordable option;

• where relevant, as to the how and by whom the employment was terminated;

• The engagement, training, disciplining, resignation or termination of employment of the employee;

• superannuation payment records, including any choice of fund nomination, and;

• The terms and conditions of employment of the employee;

• the nature of the employment (i.e. full-time, part-time or casual).

• The employee’s personal and emergency contact details;

Employers need to keep records for at least seven years, even if an employee has left employment, as employees have six years to commence underpayment proceedings.

• The employee’s performance or conduct;

• Appoint a project manager to be responsible for the payroll system setup; • Identify checkpoints/approvals during the process; and • Always refer to Master Builders NSW and Australian Taxation websites for support and information.

If you are looking at auditing your existing payroll; • Review your pay codes, leave types and deductions; • Review your manual processes for automation opportunities; • Have an internal approval process whenever a new payroll item is to be created; • Keep up to date with changes and ensure your system is updated accordingly; and • Alternatively, you could engage an expert to run this audit on your behalf.

Amendments to the Fair Work Act 2009 (Act) that came into effect in September 2017 place a reverse onus on employers to disprove an allegation of underpayment by employees if the employer has not kept required records.

• leave records;

Since September 2017, a further amendment to the Act is that a Court can declare a contravention of the Act to be a “serious contravention” and impose increased penalties up to $630,000 per infringement for companies and $126,000 per infringement for individuals.

A “serious contravention” occurs when:

• The employee’s hours of employment, salary or wages; • The employee’s recreation, long service, sick, personal, maternity, paternity or other leave; or • The employee’s taxation, banking or superannuation affairs.

Employee records must be legible, in English and can be computerised.

• the person or business knew they were contravening an obligation under workplace law; and

An employee record must include a record of the employer’s Australian Business Number (ABN).

• the contravention was part of a systematic pattern of conduct affecting one or more people.

Employee records must be accurate and not be altered except to correct a record with the correction being recorded as such. An employer must not make or make use of an entry in an employee record if the person does so knowing the entry is false and misleading.

The Fair Work Act requirements for organisations to implement stringent recordkeeping measures which will minimise

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INDUSTRIAL RELATIONS

COMPLYING WITH CORPORATE OBLIGATIONS

Details required for employee records The following table lists the details required for employee records that must be kept by an employer.

Category

Required Details

General

• The employer’s name • The employee’s name • Whether the employee’s employment is full-time, part-time or casual • The date on which the employee’s employment began • Since 1 January 2010 – the Australian Business Number of the employer

Category

Required Details

Pay

• The rate of remuneration paid to the employee • The gross and net amounts paid to the employee • Any deductions made from the gross amount paid to the employee • A record of hours worked by casual or irregular part-time employees who are guaranteed a basic periodic rate of pay • Details of any incentive-based payment, bonus, loading, penalty rate, monetary allowance, or other separately identifiable entitlement

Overtime

• The number of overtime hours worked by the employee each day or when the employee started and ceased working overtime hours if an overtime loading or penalty rate must be paid to the employee

Averaging of Hours

• If the employer and employee agree in writing to an averaging of the employee’s hours of work, the employer must keep a copy of that agreement

Leave

• Details of any leave taken by the employee • Details of the balance of the employee’s entitlement to that leave from time to time • If the employer and employee agree to cash out an accrued amount of leave, a copy of the agreement, the rate of payment for the amount of annual leave that was cashed out and when the payment was made

Superannuation Contributions

• The amount of the contributions made • The period over which the contributions were made • The date on which each contribution was made • The name of any fund to which the contribution was made » The basis on which the employer became liable to make the contribution including: a record of any election made by the employee as to the fund to which contributions are to be made » the date of any relevant election

Individual Flexibility Arrangements Guarantee of Annual Earnings1

• If the employer and employee agree to an individual flexibility agreement, a copy of the agreement and a copy of any notice or agreement that terminates the agreement • If the employer gives a guarantee of annual earnings, a copy of the guarantee and the period of time to which it relates must be kept by the employer • If the guarantee of annual earnings is revoked, the employer must keep a record of the date on which the guarantee is revoked

Termination of Employment

• Whether the employment was terminated by consent, by notice, summarily or in some other manner (which must be specified) • The name of the person who acted to terminate the employment

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MBA NSW | Issue Two | April-June 2020

Employees and former employees may access their records An employee or former employee may request a copy of employment records, though employees can only request copies of their records. Employers should take care that no access is given to the records of other employees. Where a record requested by an employee or former employee is kept at the employer’s premises, the employer must: • Make a copy of the record available to the person requesting a copy at the employer’s premises within three business days; or • Post a copy of the record within 14 days of receiving the request.

Where the record is not kept at the employer’s premises, the employer must, as soon as possible after receiving the request, make a copy of the employee record available at the employer’s premises or post a copy to the employee.

Access to employee records by inspectors Employee records must be readily accessible to a Fair Work Inspector and be in a form that allows an inspector to determine the employee’s entitlements and whether the employee is receiving those entitlements.

EMPLOYEE RECORDS FOLLOWING THE TRANSFER OF BUSINESS Where there is a transfer of business, the old employer must transfer to the new employer each employee record concerning a transferring employee.

Where a transferring employee becomes an employee of the new employer after the time of transfer, the new employer must ask the old employer to provide the transferring employee’s records. The old employer must comply with such a request.

Payslips An employer must issue to the employee a written payslip relating to each remuneration payment made by the employer to the employee. The payslip must be issued within one day of the payment to which the pay slip relates being made to the employee, either electronically or as a hard copy.

The payslip must contain the following information:

COMPLYING WITH CORPORATE OBLIGATIONS

• The name of the employer and the name of the employee; • The date on which the payment to which the pay slip relates was made; • The period to which that payslip relates; • The gross amount of the payment and the net amount of the payment; • Any amount paid that is a bonus, loading, allowance, penalty rate, incentive-based payment or other separately identifiable entitlement; • Since 1 January 2010 – the Australian Business Number (ABN) (if any) of the employer; • The details in respect of each amount deducted from the gross amount of the payment including the name, or the name and number, the fund or account into which the deduction was paid; • If the employee is paid at an hourly rate of pay: » the ordinary hourly rate;

» the number of hours in that period for which the employee was employed at that rate; and » the amount of the payment made at that rate • If the employee is paid at an annual rate of pay — that rate as at the latest date to which the payment relates; and • If the employer is required to make superannuation contributions for the benefit of the employee: » the amount of each contribution made by the employer during the period to which the pay slip relates; » the name, or the name and number, of the fund to which the contribution was made; and » the amounts of contributions that the employer is liable to make in relation to the period to which the pay slip relates and the name, or the name and number, of any fund to which the contributions will be made.

INDUSTRIAL RELATIONS

Note: while not a statutory requirement, Master Builders recommends any hours accrued for annual leave and banked towards a rostered day off should be recorded on an employee’s payslip.

Breaches of record-keeping requirements Civil penalties apply if an employer breaches the requirements for employee records and payslips. The maximum penalty that can be ordered for each contravention of a civil penalty provision is $12,600 for an individual and $63,000 for a Corporation.

Further information The Master Builders Association has published Fact Sheets on several other relevant topics.

For further information, please see the relevant fact sheets at www.mbansw.asn.au – login with your MBA member login – click on Industrial Relations and member downloads.

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