Underpayments - one of businesses' biggest blind spots for 2020

At PwC, we work with thousands of clients every day of all sizes, and across every sector of society. This gives us a pretty good bird's eye view of the business landscape in Australia, and a detailed understanding of some of the main issues that are surfacing in board rooms across the country. Over the past couple of months we have spent some time gathering data, and talking to the experts in our client teams, and have put together a report on the key issues we think will be significant for many Australian businesses in 2020 - issues which are often overlooked. 

The 5 key issues are industrial relations risks, the workforce skills gap, ongoing currency volatility, sustained sluggish growth, and loss of capital to offshore markets. You can read about all 5 of these issues in the report here, but in this article, I want to take a detailed look at two - industrial relations risks and the workforce skills gap.  

Underpaid and overwhelmed - why Australia’s IR system is in need of further reform

It seems that barely a week goes by these days without another news story breaking about a business that has underpaid its employees. And this is just the tip of the iceberg - there are undoubtedly thousands more businesses of all sizes across Australia currently underpaying their workers. Many commentators have been quick to jump on each new revelation with accusations of corporate greed, ‘wage theft’ and executives lining their own pockets at the expense of their workers. But the truth is both far more complicated and far less sensational. 

Australia’s industrial relations system has gradually evolved over time to become an extremely complicated system. Modern awards have multiple clauses addressing minimum rates of pay and other safety net entitlements which differ depending on job, skill level and industry. Overtime, penalty and shift rates are interdependent and may differ within a single award depending upon employment status and work type. Some common industry awards contain over 10 separate rules that affect overtime accrual. The potential for errors to be made in this system is enormous. In many cases, one small error in a system can become a multimillion dollar catastrophe by the time it is discovered, many years down the track. 

In addition to complexity, advancements in data management and visualisation technology at many organisations are bringing to light errors that previously went undetected. Eventually these new tools will make it easier to avoid payroll mistakes, but this will require sustained investment by businesses to ensure they have the right technology and that it is being used correctly. 

The decline of unions in Australian workplaces has also reduced the policing of employee entitlements specific to particular industries, where the interpretation and operation of industry-specific entitlements often carry a long history.

Mistakes rather than malice are overwhelmingly the cause of underpayment cases, and PwC’s latest research suggests there are many more of these stories to come. For industries with a high prevalence of the underpayment of workers’ entitlements, such as retail, construction, healthcare and hospitality, our research estimates that there is in the order of $1.35 billion in underpayments per year. This estimate includes 21% of the workforce in the selected industries, or 13% of the total Australian workforce.

The argument that underpayments are largely the result of complexity and are inadvertent rather than intentional will not be accepted by regulators and certainly won’t pass the court of public opinion. But equally, businesses cannot be solely held to account for fixing the underpayment problem. Larger businesses can afford to bring in the legal and technical expertise to unravel IR complexity, but for many smaller and medium sized businesses these issues could become crippling if action is not taken to simplify the system. 

IR has almost become a taboo subject in political debate but it’s time for government, unions, businesses and regulators to come together and solve this problem. A simpler system would benefit both employers and employees, and provide a much needed productivity boost for the overall economy. 

The missed opportunity in workforce skills  

As digital technology becomes more prominent in Australian workplaces, our workforce skills are not keeping up. Our research shows that while the majority of Australians are worried about technology putting their jobs at risk, only 40% are taking any steps to improve their skills, and only half of these are doing so through their employer. 

This is putting us well behind the curve globally, and will cost us in talent and dollars if we do not remedy it. Our analysis shows that training an additional 100,000 technology workers above current levels over the next five years would add $40 billion to GDP over the next 20 years. As businesses grow and become more digitally advanced, the lack of a skilled workforce locally will become a major impediment sooner rather than later. 

Governments, schools and universities have a role to play in fixing the skills deficit in Australia, but we cannot afford to wait for the next generation of workers to come online. The onus is on employers to invest in upskilling their employees now, if they don’t want to lose talent and growth potential in the years ahead. Just recently PwC announced a global investment of $3 billion in digitally upskilling our people over the next 3-4 years. We are fundamentally a people business, and we know that this investment is essential if we are going to remain a magnet for global talent. 

You can read more about the top five issues for Australian businesses in PwC’s new report, Australia Matters.  

Visit the homepage: www.pwc.com.au/australia-matters 

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