In recent years, many of Australia's large employers have been the subject of scrutiny by the Fair Work Ombudsman (FWO). The FWO is responsible for monitoring compliance with the Fair Work Act 2009 (Cth) and the instruments made under that Act. Many of the investigations and prosecutions initiated by the FWO were the result of voluntary disclosures of significant underpayment of wages and other monetary entitlements.
The FWO has stated that voluntary disclosure is likely to reduce the prospects of enforcement action being taken in respect of underpayments. Aside from "isolated payroll errors resulting in underpayments over 12 months or less", the FWO encourages self-reporting to 'justify' the FWO's use of non-litigious and non-punitive compliance tools to resolve the matter.
In cases of large scale underpayments going back many years, the FWO will encourage the employer to accept an Enforceable Undertaking.
Case example
A recent example is Eagers Automotive Limited's (EAL's) $16.2 million back-payment to current and former employees for underpayments that occurred between 2013 and 2021.
EAL (formerly AP Eagers) is an Australian public company that operates automotive dealerships in all Australian states and territories, as well as in New Zealand. Following its acquisition of Automotive Holdings Group Limited (AHG) in 2019, EAL became Australia's largest car dealership business.
In 2021, EAL self-reported the underpayments to the FWO after a review of its payroll following the acquisition, which found anomalies in relation to 19 AHG subsidiaries.
The self-report by EAL revealed a range of compliance failures. These included not paying employees according to award progression, incorrect employee classifications, unpaid overtime and leave, not paying for training, failing to pay employees (as required) when they were sent home due to no work, and making unauthorised deductions.
The current FWO, Anna Booth, highlighted that EAL's:
"long-term breaches resulted from a lack of a consistent time and attendance system along with reliance upon manual paper timesheets, and a decentralised payroll system – plus a lack of awareness of workers' legal entitlements."
This failure led to significant underpayments and rectification costs for the company.
Ms Booth further emphasised the importance of proactive compliance and thorough checks for employers, stating that "large employers need to place a higher priority on having systems and processes in place that ensure employees' full lawful entitlements are met, year-in, year-out."
EAL has since entered into an Enforceable Undertaking with the FWO and has back-paid a total of $16.2 million to 13,277 current and former employees, which includes approximately $12.1 million in wages, $1.1 million in superannuation and $3 million in interest.
Getting on the front foot
To prevent an issue from accumulating and leading to serious consequences over time, organisations should take several actions to review their compliance. These include:
- ensuring that the correct industrial instruments are applied to the organisation and to different groups of staff
- regularly reviewing and updating employees' classification levels
- ensuring applicable industrial instrument entitlements are interpreted correctly and seek legal advice where appropriate
- conducting a review to ensure applicable industrial instrument entitlements are correctly coded into the payroll system
- reviewing annualised salary practices to ensure that salaries are sufficient to cover the minimum wage to which each employee is entitled under the relevant instrument
- seeking legal advice if anomalies are identified to determine the nature of the issues, whether it amounts to a contravention, and any steps required to meet legal obligations.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.