Large corporates and universities beware – FWO announces record $532 million recovery of underpayments

Saul Harben, Paul Fontanot, Amy Toohey, William Howe, Chris Bromell and Tae Kim
01 Sep 2022
Time to read: 3 minutes

As the Fair Work Ombudsman increases its activity in recovering employee underpayments, employers should consider the value of conducting a payroll audit for their business.

The Fair Work Ombudsman (FWO) has announced that it has recovered $532 million in unpaid wages and entitlements in the 2021-22 financial year. This represents a significant increase from its recovery of underpayments in the 2020-21 financial year, which previously stood at a record $148 million. The FWO’s latest figures reflect that almost $279 million of the underpayments it recovered in the last financial year came solely from large corporate employers. This comes two years after the FWO first designated “large corporate underpayments” as one of its compliance and enforcement priority areas and established a specialised Large Corporates Branch to respond to this concern.

In June 2022, the FWO announced that it will be adding the university sector to its list of strategic priorities for financial year 2022-23. The FWO has already commenced numerous compliance and enforcement activities in the higher education space, including in relation to the payment of university casual staff, and this trend is expected to continue. The FWO has put universities on notice of its view that poor governance and management oversight, and a lack of centralised human resources functions and investment in payroll and time-recording systems, have recurring themes in the higher education sector.

Going forward, it would seem that large corporates and universities remain priority areas for the FWO, along with its other focus areas which include fast food, restaurants and cafés, agriculture and contract cleaning.

This makes it critical for employers to ensure that they have met, and are continuing to meet, their payment obligations to their employees. The FWO has previously stated that it will generally treat employers who invest in undertaking reviews or audits of their employee payments favourably. An employer’s self-remediation of its employee underpayments should, however, be thorough and robust enough so that, if the FWO decides to investigate its payment practices, the self-remediation process it has adopted can withstand an examination or validation by the FWO.

Why are employee underpayments an issue?

While the issue of employee underpayments has been attracting public attention for several years now, since early highly publicised cases of underpayment such as George Calombaris’ MAdE Establishment group reporting in 2017 that it had underpaid employees $7.8 million, it has become clear that underpayment issues are not isolated to the restaurant and hospitality industries. There have been a number of well-known companies, across industry sectors, labelled by the media as involved in “wage theft”.

The heightened responses by the FWO and other state regulators have followed several state and federal government inquiries into the issue of employee underpayments. Many of these inquiries concluded that, beyond the reputational consequences that an employer may face for underpaying its employees, underpayments can have a significant negative impact on the broader community. It has also been suggested that the underpayment of superannuation – which, in the 2018-2019 financial year alone, was found to be $2.5 billion across Australia – will, over time, impose a greater burden on taxpayers as retirees become more likely to seek taxpayer-funded pensions. Further, underpaying employees has been described as an anti-competitive practice, as it can disadvantage businesses who pay their employees the correct rates, as well as distort a company’s reported financial returns and affect its share prices and dividends. The payment of employee entitlements is arguably now, more than ever, a key ESG concern for business.

Additionally, so far, Victoria and Queensland have legislated to make certain underpayment practices a criminal offence, and other states have also expressed an interest in following suit. Officers of the company have the potential to be charged with criminal offences under accessorial liability. While many of the state laws apply to all payment entitlements, including in some cases entitlements under the Fair Work Act 2009 (Cth), a renewed focus has been placed on employers’ compliance with state-based long service leave entitlements. For instance, the Wage Inspectorate Victoria, tasked with enforcing the new Wage Theft Act 2020 (Vic) which commenced on 1 July 2021, recently announced that it had recovered $1 million in unpaid long service leave entitlements in its first 12 months of operation.

As an election promise, the Federal Labor Government has committed to criminalising wage theft at a national level while maintaining the effect of existing state and territory laws that deal with this matter. However, employers should note that substantial civil penalties already apply under the Fair Work Act, being, for a body corporate, up to $66,000 per contravention or up to $660,000 for a serious contravention (being one involving a knowing contravention that is part of a systematic pattern of conduct).

Should your enterprise consider conducting a payroll audit?

Recent developments have shown that no employer, large or small, is immune from scrutiny when it comes to their remuneration practices. Navigating the web of payment obligations owed by an employer, including obligations under employment contracts, any applicable modern awards or enterprise agreements, preserved award entitlements and state-based long service leave, can be a challenging task – let alone correctly administering these obligations through accurate payroll, time recording and record-keeping practices and systems. Managing relationships with key stakeholders, and any communications with the FWO, can be other significant challenges in this process. While conducting a thorough audit exercise to ensure your business’ ongoing compliance can be costly and time-consuming, incurring this upfront cost may be a worthwhile expense in the present regulatory landscape.

Clayton Utz’s payroll solution, AcCUrate, was developed in-house to assist clients conducting audits. Contact our team if you are interested in learning how we can work with you to tailor AcCUrate to be fit for purpose for your organisations validation, reporting, remediation and compliance needs.

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