The Fair Work Ombudsman releases guidance on Payroll Remediation Programs

The Fair Work Ombudsman's (FWO) new Payroll Remediation Program Guide (PRP Guide), released last week, makes recommendations for the remediation of employee entitlements under the Fair Work Act 2009 (FW Act).

Against the backdrop of increased instances of self-reported underpayments by employers as well as uncertainty as to appropriate remediation structures, the PRP Guide provides useful information for employers seeking to engage in a PRP.

The PRP Guide provides a recommended framework for employers engaging in a PRP as well as best practice guidelines for notifications to the FWO. More specifically, the PRP Guide outlines the suggested elements of a PRP, including:

• guidance as to designing a PRP;

• recommended wage calculations methodology; and

• guidelines for engaging in communication with current and former employees.

Further guidance in relation to making payments, corrective measures and ongoing future compliance can also be found in the PRP Guide.

While the PRP Guide is useful, there is no one size fits all approach to PRPs and the PRP Guide is not binding.

Further, it is noted by the FWO that the information in the PRP Guide should be scaled to the size of the issues to be remediated and the circumstances of the employer. The guidance is also often general and specific advice and support is likely to be required.

We take a look at the key insights to come out of the PRP Guide below.

Notifications to the FWO

Whilst there is not a legislative reporting obligation, the PRP Guide recommends that employers report any broad or potentially systemic non-compliance to the FWO as early as possible. Although employers may not have fully identified all issues involved in the non-compliance at an early stage, the FWO encourages notifications as soon as possible. Employers may then engage in subsequent communication with the FWO as further information becomes available. As part of this process, the FWO may also request a series of checkpoints under which an employer expects to be able to provide information as to the progress of the PRP.

The PRP Guide notes that, should the FWO become aware of potential non-compliance prior to an employer's notification, a subsequent notification by the employer will not be regarded as a voluntary or early self-report.

The PRP Guide indicates that isolated payroll errors which lead to underpayments for a period of up to 12 months do not need to be actively reported to the FWO, provided that:

• employees are informed of the underpayment;

• employees are back paid in full as early as possible; and

• employers implement changes to ensure that the error is not repeated.

Time period of review

Employers are often concerned about how far back a remediation analysis should go.

The PRP Guide has confirmed the FWO generally expects reviews to cover the longest possible period, considering the availability of employee records/data sources and when non-compliance began.

Pursuant to s 544 of the FW Act, the statutory limitation period for the commencement of proceedings to recover an underpayment or seek penalties for contraventions is six years. The FWO indicates that it views this as a minimum period, not a limit to additional remediation, and may seek information as to the basis for a decision to limit a PRP to the statutory limitation period.

Additionally, the PRP Guide has acknowledged that if a review period is limited to less than six years, the FWO may scrutinise and seek to understand the basis for this decision, as it may impact the effectiveness of ensuring employees receive their lawful entitlements.

Guidelines for communications with employees

The PRP Guide encourages employers engaging in a PRP to create a communication plan. As part of this plan, communications should be directed to all current and former employees who belong to the relevant cohort affected by the non-compliance. The PRP Guide encourages a multi-channel approach for communications to maximise the delivery of the content; channels may include email, workplace notification platforms, phone calls, SMS or letters.

All communication should contain sufficient detail to allow employees to understand the non-compliance issue and whether the PRP will apply to them. Moreover, employees should be notified of the non-compliance as early as possible and should be provided with avenues for queries and dispute resolution.

The RPR Guide further recommends that employers engage with employee representatives including unions and workplace consultative bodies throughout the PRP.

Finding former employees

Employers undertaking PRP's may not always have current contact details of former employees.

The PRP Guide sets an expectation that employers are required to take all reasonable steps to locate and pay former employees who are affected by the non-compliance. According to the PRP Guide, employers should make repeated attempts to locate former employees across a range of channels, including through contact details from the employee's personnel files, emergency contact details, direct messages on known social media accounts or via relevant unions, employee networks or professional associations. Employers can also use information search facilities to locate employee contact information.

If all reasonable steps are exhausted, employers may discuss the possibility of making payment to the Commonwealth under section 559 of the FW Act as unclaimed moneys.

PRP Guide's approach to offsetting payments and calculating interest

While the approach to offsetting is the subject of proceedings before the Federal Court and remains an open question, the PRP Guide notes that whether an employer can offset amounts owing will depend on the circumstances, including the terms of the applicable employment contract and any annualised wage provisions in a relevant award or agreement. The PRP Guide notes that the FWO's general position is that employers must pay employees in full for each pay period, and cannot satisfy an underpayment in one pay period through paying an employee more than the minimum amount in another pay period.

Further, the PRP Guide indicates that it is good practice for back payments to employees to include interest. It notes that the payment of interest is a suitable demonstration by the employer of their responsibility for the underpayments and that it will take into account the payment of interest and the specific interest rate applied when considering whether to impose compliance or enforcement action on an employer. The PRP Guide further states that a simple interest calculation on the underpayment is sufficient. This calculation may be reached using the Pre-Judgment Rate from the Federal Court of Australia's Interest on Judgments Practice Note (which equates to the RBA cash rate for each half year period plus 4%).

Corrective measures

Finally, the FWO makes it clear that allowing non-compliance to continue during the conduct of a remediation program, without taking appropriate steps to address it, may give rise to serious contraventions of the FW Act and that it will seek information about the steps taken by employers.

Accordingly, it is fundamental that as soon as an employer has become aware of actual or suspected underpayments, immediate measures are considered and where feasible implemented to avoid continued non-compliance, and that those measures are documented.