Are you on top of the top drivers of corporate wage underpayments?

We previously provided some tips on Reading between the Lines of the Fair Work Ombudsman’s Annual Report . In that piece we highlighted the FWO’s record recovery of underpaid wages in the last financial year……and the extent to which largescale ‘corporate’ underpayments had contributed to this (answer….almost all of it!). As illustrated by my current fav graph......

In Deloitte’s recent Workplace Integrity webinar, we shared our remediation experts’ insights into what was behind these corporate underpayments of a scale and complexity we’ve only seen emerge in the last 3 years. Webinar vid and further insights to come in future articles……

In this session, we took a closer look at what FWO itself thinks is the cause of these underpayments.

We agree with FWO’s observations. Having assisted with dozens of large remediations in the last few years, we’ve certainly seen these elements at play, usually several of them at once. ?FWO’s identified root causes also resonated with our audience– we asked them which of the drivers they thought were most significant, and here’s what they said…

The standout was misapplication of instruments. Almost all our participants picked it as a key root cause. As any industrial relations expert will tell you, this is IR101. It’s the first and most critical input into the equation of getting entitlements right. Understanding what award or agreement applies, which classification or pay point is relevant to the employee and then applying this pay point.

Many other entitlements build on this baseline – penalty rates, overtime, etc. If this isn’t right, then odds are you won’t be fully compliant because your baseline is wrong. Even if you are paying what you believe to be ‘above’ market or minimum rates.

You need solid industrial relations expertise to make sure you're getting this right - another factor the FWO has found to be lacking when things have gone wrong.

We at Deloitte would advise the industrial relations expertise needs to be embedded in your HR and payroll and backed up with robust processes and controls to make sure your systems ensure you keep getting it right as jobs evolve and people shift into different roles.

The other key part of the formula into getting entitlements right is knowing what hours have been worked. So it’s also striking that the second most popular choice was record keeping. Half our participants saw inadequate record keeping as a key contributor to corporate underpayments.

You can see why. Our industrial relations system ‘marks up’ the rates if an employee works longer hours over different timeframes – a day, a week or a pay period, or misses a break. The ‘triggers’ for the ‘mark up’ are the actual hours worked – which aren’t always the same as the roster. A missed lunch break or a shift going over time can be a trigger for higher rates of pay.

If you don’t know the real hours that each employee has worked, you can’t be sure these triggers haven’t been activated and that you have paid enough to cover the higher rates of pay that apply.

Get the formula right – simple? Not always. Not if you haven’t got the systems in place to identify the right instrument and paypoint, and visibility of hours worked.

While annualised salary arrangements achieved a relatively lower result from our Webinar audience, it’s still significant that 2 in 5 people chose it this is a discreet but important cohort of workers that many employers have not been able to get right.

All three cases the FWO has put into court involving corporate underpayments have involved annualised remuneration arrangements

A question that was put to us in our Webinar was what to do with salaried workers whose remuneration is annualised and who have never had a practice of ‘clocking on and off’.

We hear this a lot. It’s counter cultural for some types of ‘unrostered’ employees to keep time to this level of detail. But many of these workers are covered by awards. With entitlements that are triggered by the hours worked.

This is a real dilemma in the post-pandemic age of ‘work anywhere, when you want’ and where choice and agency over work is being demanded by employees. It's not the case for 'rostered' workers but for many, the directive approach to when and where work happens is very much thing of the past.

We are working with clients to help them get the balance right between implementing 'clock on clock off' for annualised salaried workers vs having enough visibility of hours worked, a sufficient remuneration 'buffer' along monitoring systems to be confident all entitlements are covered.

In future pieces we’ll share more insights from our Webinar and talk about how to put the right systems in place to balance both sides of the entitlements equation and get compliance right.