The Pay Dilemma: Unmasking Underpayment in Australia's Workplace

The Risk of Underpayment in Australia: A Focus on Industrial Awards & Enterprise Agreements

Recently, it was announced that some of Australia’s biggest employers, including Westpac, are introducing measures to reduce the risk of underpayment claims from employees. The Financial Review reports that Westpac is returning to time sheets for some staff so the bank can keep track of the employees’ “actual hours.”

Underpayment of staff is a significant issue in Australia, drawing increasing scrutiny from regulators and the public. This problem is particularly acute when employees are remunerated according to specific industrial awards or enterprise agreements and when their working hours exceed the standard 38-hour workweek .

The complexities of these agreements, coupled with mismanagement or intentional malpractice, can lead to substantial underpayments, which have legal and financial repercussions for employers and significant adverse effects on employees.

Understanding Industrial Awards & Enterprise Agreements

Industrial awards in Australia are legal documents that outline the minimum terms and conditions of employment for specific industries or occupations. These include wages, working hours, leave entitlements, and other workplace conditions. On the other hand, enterprise agreements are negotiated agreements between an employer and a group of employees or a union tailored to the enterprise's specific needs. However, they must still meet or exceed the minimum standards set by the relevant award and the National Employment Standards (NES).

The Legal Framework

The Fair Work Act 2009 (Cth) underpins the legal framework governing industrial awards and enterprise agreements. It mandates that employees must not be paid less than the award rates. Those agreements must pass the Better Off Overall Test (BOOT) , ensuring employees are better off under the agreement than the applicable award. Despite these protections, the complexity of awards and agreements can sometimes lead to inadvertent underpayment.

Causes of Underpayment

Several factors contribute to the risk of underpayment:

1. Complexity and Misinterpretation: Awards and enterprise agreements can be intricate, with detailed provisions that require careful interpretation. Misunderstanding these provisions, particularly regarding overtime, penalty rates, and allowances, can result in underpayment. For example, if an employee works more than 38 hours a week, they may be entitled to overtime rates, but calculating these correctly requires a thorough understanding of the award or agreement.
2. Inadequate Payroll Systems: Outdated or improperly configured payroll systems may not accurately calculate entitlements, particularly when employees work irregular hours or are entitled to various loadings and penalties.
3. Non-Compliance: Some employers, knowingly or unknowingly, fail to comply with the terms of awards or agreements. This can stem from a lack of awareness, poor record-keeping, or deliberate efforts to reduce labour costs.
4. Changes in Work Patterns: Modern work patterns, such as flexible working arrangements, can complicate entitlement calculation. For instance, employees working from home or on varying schedules may inadvertently be underpaid if their hours are not accurately tracked and compensated.

The Impact of Underpayment

The consequences of underpayment are far-reaching. For employees, it means reduced income, financial stress, and decreased morale. It can also affect their entitlements to superannuation, leave, and other benefits, impacting long-term financial security. For employers, the repercussions include legal action, financial penalties, and irreversible damage to the company's reputation. High-profile cases, such as those involving major Australian companies, have highlighted the significant costs, public prosecution and backlash associated with underpayment scandals.

"The banking sector is also closely watching an FSU test case against National Australia Bank on excessive hours, which is expected to define for the first time what counts as “reasonable additional hours” for white-collar salaried staff". - For more information, visit the original article in the Australian Financial Review .

Legal Remedies & Enforcement

The Fair Work Ombudsman (FWO) is Australia's primary regulator enforcing compliance with workplace laws. Employees who suspect they are underpaid can lodge complaints with the FWO, which can investigate and take action against employers. Remedies for underpayment include back payment of wages, penalties, and, in severe cases, prosecution. Employers identified and found guilty of underpayment can face significant fines, and company directors can also be held personally liable.

Preventive Measures for Employers

Employers should adopt proactive measures and seek legal counsel to mitigate the risk of underpayment. Recommended actions include:

1. Regular Audits: Regular audits of payroll and employment practices are essential to identify and rectify discrepancies early. These audits should be comprehensive, covering all aspects of employee remuneration and working conditions, and should be integrated into the company's ESG governance framework.
2. Training and Education: It is crucial to ensure that HR and payroll staff are well-trained in understanding and applying the relevant industrial awards and enterprise agreements. Regular training sessions and updates on changes in legislation and awards can prevent misinterpretation and errors.
3. Upgrading Payroll Systems: Investment in modern, automated payroll systems that can accurately calculate entitlements based on varying work patterns and award conditions is essential. These systems should be regularly updated to reflect changes in awards and agreements.
4. Clear Policies and Procedures: Developing clear policies and procedures for recording working hours, including overtime and flexible work arrangements, can help ensure accurate tracking and payment of entitlements. Employers should also communicate these policies effectively to all staff.
5. Engagement with Unions and Employee Representatives: Regular engagement with unions and employee representatives can help in understanding the practical implications of awards and agreements and proactively addressing any concerns regarding underpayment.

Final Thoughts

Looking forward, will these enquiries lead to a rise in protections for white-collar professionals? Will redefining expectations around 'reasonable additional hours' help those professionals overloaded with overtime and never-ending cycle-intensive workloads? What is considered fair and reasonable, and will this result in the reexamination of fair compensation for those who repeatedly miss out on their right to additional overtime pay and compensation?

These questions highlight the evolving landscape of employment law and the importance of proactive measures to safeguard employees and employers.

The issue of overtime exploitation and underpayment in Australia, especially within the framework of industrial awards and enterprise agreements, demands urgent attention from employers, whether the oversight is intentional or not. Employers can ensure fair and accurate payment by understanding legal requirements, investing in proper systems and training, and integrating and adhering to these practices into their ESG and governance frameworks. Employers can mitigate risks and ensure fair and accurate payment by maintaining proactive, two-way communication with employees and their representatives. This approach not only complies with the law but also fosters a positive workplace culture and a healthy balance, creating a beneficial domino effect throughout the organisation.

Madison Marcus Employment Law and Governance Services offers expert guidance to help employers navigate these complexities, uphold their obligations, and ensure compliance and ethical standards.