Reading between the lines of the Fair Work Ombudsman's Annual Report

Many clients I speak with find the Fair Work Ombudsman (FWO) to be a regulator that is difficult to understand and predict. While it releases dozens of media releases each year, it’s position and aspects of its approach seem opaque to some.

With so many large, established businesses being caught short in paying their employee wages in the last few years, the FWO’s approach has been evolving. It likes to keep its options open – like, for example, making it clear that it always reserves the right to litigate until a matter is resolved in some other way.

Apart from its official and not especially detailed policy documents, such as the Compliance and Enforcement Policy, key statements that show signs of its posture are Senate Estimates and its Annual Report.

If you know how to read between the lines, these outings can be revealing. ?

This article draws some insights from the FWO’s recently tabled report for the 2020-21 year – a tumultuous year on multiple fronts. While the FWO has been advising thousands of workers and employers about COVIDTimes: Jobkeeper, stand downs, vax policies etc, it’s also been carefully and perhaps a bit cautiously evolving its approach to enforcement. In particular, reframing how it deals with complex, corporate underpayments.

Some key insights:

1.??The FWO is being more proactive in enforcement and compliance activities

2.??The FWO’s priority industries remain largely the same…but

3.??Large corporates are under the microscope more than ever

As an ex-FWO, now working with business on compliance, I feel like I have a sense of what’s going on on both sides of the fence.

The Workplace Integrity practice has helped businesses of all shapes and sizes detect and remediate underpayments of wages and entitlements. We’re also helping them make sure they put systems in place to ensure they are on top of this into the future. ?

If you’re interested in hearing more about this, register here for a webinar I’m hosting at 1pm (AEST) 24 November where?my colleagues and I will share our thoughts on what’s gone wrong, and what needs to be right to ensure things don’t go wrong in the future.

Insight 1: The FWO is sharpening its enforcement tools and directing them with lethal aim

Last financial year the FWO recovered a record $148 million. This beats last year’s record, and more than doubled the previous year’s recoveries. The impact of this is best seen when graphed……!

There’s quite a story behind this very significant increase, some of which we cover below…..There’s no getting away from the fact that something’s going on to produce such a big increase in recoveries. While the FWO has had some success in securing additional resources in the last few years, it’s not more ‘boots on the ground’ that has led to this.

The FWO was asked about the extent of ‘wage theft’ at the recent Senate Estimates hearing – whether it was increasing and whether these record high amounts were the high water mark of non-compliance. Sandra Parker was asked ‘how much wage theft is still out there that you’re not able to get to?’

This is a hard question to answer, because the FWO takes a risk based approach to their work, based on intelligence and targeting areas known to be high compliance risks. That was essentially her response. Time will tell if next year’s bar is even higher again….

While many of these unpaid wages are repaid without the deployment of formal enforcement tools, these tools play a key part in these recoveries.

“…in 2020-2021, we used our enforcement tools in 2,633 cases, a 62% increase from the previous year”.

The 62% figure is a roll up of the total of all enforcement tools in one – the breakdown looks like this:

• 513 infringement notices
• 2025 compliance notices
• 19 enforceable undertakings
• 76 litigations initiated

There are a few stories behind these numbers.

Enforceable Undertakings – the quiet achiever

Firstly, the enforcement tool most seldom used – enforceable undertakings (EUs) was responsible for a pretty significant proportion of the recoveries: $81 million of unpaid wages from just 19 EUs. Massive!

The FWO has been sharpening its EUs up with more onerous obligations, including third party reviews of remediations (paid for by the employer) and of systems and processes to demonstrate compliance going forward. We could and might do a whole article on what to look out for in negotiating an EU… another time.

Compliance Notices R GO!

The second story is that compliance notices have become the FWO’s most favoured tool making up 77% of all enforcement activities, and recovering over 700% more money than last year.

The FWO issued 113% more compliance notices than the previous year – from 952 to 2025. They also recovered a lot more unpaid wages from compliance notices this year – from $0.95 million to $16.5 million. This means:

• on average, each compliance notice is recovering 717% more money than in the previous year
• the average compliance notice recovered $8,148.15 whereas last year it was a much more modest $997.

The FWO has made a simple but highly impactful operational change to how it deploys compliance notices. It traditionally calculated shortfalls so the employer knew exactly how much they needed to pay to comply. This is an onerous and time consuming task for Fair Work Inspectors, requiring detailed information about entitlements and patterns of work.

In response to the 2019 Migrant Workers’ Taskforce recommendations, the FWO has stopped doing the employers’ calcs for them. Compliance notices identify contraventions but require employers to rectify by doing their own calculations. Given the employer has access to all the necessary information, this seems fair enough and explains why so many compliance notices are now being issued – they are much less work for the FWO and much more work for the employer!

Court cases are up

I also can’t leave unnoted the very significant number of court cases initiated this year – I don’t believe the filings have been in the 70s for many years.

Noteworthy is that large corporate organisations are not spared this sharpest of all tools, with 2 well known businesses that self-reported underpayments having been the subject of court action so far this calendar year.

So when the FWO say ‘litigation is always an option’ ….believe them. They mean it. If you don’t want it to be you in court, consider your approach to engaging and cooperating with the regulator.

Insight 2: The FWO’s priorities remain largely the same

In July this year, the FWO announced the 2021-22 priorities which are reflected in the Annual Report[1]. These include:

• Supporting workplaces through COVID-19
• Large corporate underpayments
• Fast food, restaurants and cafes (FRAC)
• Horticulture
• Franchise arrangements
• Sham contracting
• Contract cleaning

Besides COVID-19 and contract cleaning, these priorities are the same as the previous year. None of these sectors have been getting gold stars for compliance for some time. For example, the FWO tells us large corporates accounted for $100 million worth of underpayments (more on this in our next insight) and FRAC was the least compliant sector this year.

What’s interesting about these priorities is they are not all obvious friends. Some of them have been traditionally non-compliant sectors – like FRAC, horticulture, and franchising – where non-compliance can be wilfully blatant and affect the most vulnerable workers. On the other hand, large corporate entities have been emerging recently as its more evident that big businesses have become complacent and are not invested in effective governance and systems to ensure they are paying their workers correctly. So, the nature of the industries and sectors on the FWO’s priority list may be vastly different but they share the same underlying issue of failing to comply with their workplace obligations.

The takeaway message for businesses is simple: if you’re operating in these priority areas, it’s more likely the FWO will be targeting you.

Insight 3: Large corporates are under the microscope more than ever

A notable (and familiar) flavour of the Annual Report this year was the FWO’s commentary on large corporate underpayments. (You might recall this flavour from my article earlier about the changing face of compliance).

Since the start of 2019, many brand names we are all familiar with have occupied the media headlines with their stories of underpayments. In light of this, Sandra Parker wrote to the top 200 ASX businesses in February 2020 calling on the recipients to not be complacent or over-confident about their compliance.[2] The FWO also noted this year they set up a Large Corporate Branch to support investigations into large corporate underpayments.

The media headlines, the FWO’s call to action and the new Large Corporate Branch seemed to work.

Because, of the $148 million recovered for 67,000 employees last year, 67% ($100 million) was self-reported by large corporates for 81% (54,500) of all employees.

Similarly, 89% of the EUs entered into (17 of 19), were with large employers who self-reported non-compliance. This also explains why such a huge proportion of the recoveries were secured via EUs.

The point here is that the headline figures we looked at earlier are largely represented by employers who have self-reported their underpayments to the FWO, rather than being proactively audited or investigated by the FWO.

The money recovered by the FWO that does not include large corporate self reports has remained more stable over the past 6 years – between $22.3 million and $48.3 million.?[3]

Why are large corporates getting it wrong

The FWO gives us a sense of what it thinks is behind this new trend:

‘Ineffective governance and systems of internal controls to monitor, detect and address non-compliance with workplace obligations.’

This includes things like having inadequate processes to record hours of work, failing to apply an enterprise agreement to covered employees, annualised salaries failing to cover award rates for hours worked, and ineffective approaches to managing payroll and compliance within organisations.

We would agree that these aspects are often a feature of the large remediations we assist our clients with.

?The FWO’s message for large organisations is clear – they ‘must place a much higher priority on investing in payroll and workplace relations systems and expertise to ensure they are paying workers what they are entitled to’.

Higher education taking centre stage – 33% of Australian universities are working with the FWO

The FWO tells us in the Annual Report as of 30 June 2021, it is investigating 10 universities. Then in Senate Estimates, the number of universities being investigated was 14.[4]

There are 43 universities Australia-wide so by the more recent figure of 14, 33% of Australian universities are currently working with the FWO.[5] Those that aren’t may be on the way, given Sandra Parker has written to all of them asking them to ensure they are compliant.

Like large corporates, the FWO says the majority of these had self-disclosed and the patterns of issues in the sector include poor governance and management of pay and entitlements, decentralising payroll and HR and a lack of investment in time and attendance systems.

I expect we will be hearing more about the university sector’s industrial relations compliance agenda over 2022…

Now what?

• Now is the time to ‘look under your hood’. This year’s Annual Report is a strong reminder that industrial relations education, enforcement and monitoring is not slowing down. In Senate Estimates the FWO also commented that they are looking to automate complex payroll assessments – this smells like they will be getting even better at detecting non-compliance.[1]
• So if you haven’t already… it might be time to look under your hood to confirm your pay and entitlements are working as planned.
• If you’ve already been working through a retrospective piece, you may also be looking to opportunities to enhance your processes and controls around payroll and compliance going forward, to ensure your governance and systems are fit for purpose and are catching all the entitlements of all your people.

An invite: On 24 November at 1pm, I’ll be hosting a webinar with my colleagues, @JustinAlgie and @NeilGrey. We’ll be discussing our experience with compliance and remediations along with traps and tips for industrial relations compliance and what you can do to set yourself up for success. Use this link to register your attendance.

[1] https://www.fairwork.gov.au/newsroom/media-releases/2021-media-releases/july-2021/20210709-fwo-2021-22-priorities-media-release

[2] The Fair Work Ombudsman and Registered Organisations Commission Entity Annual Report 2019-20, p.22

[3] We are not able to compare money recovered from large corporates in previous years as the FWO only began reporting on it in 2019-2020

[4] https://www.aph.gov.au/Parliamentary_Business/Hansard/Estimates_Transcript_Schedule

[5] https://www.studyaustralia.gov.au/english/australian-education/universities-and-higher-education#:~:text=There%20are%2043%20universities%20in,institutions%20offer%20higher%20education%20courses.