Avoiding the Wage Theft Trap

As wage theft dominates the headlines, company names are increasingly in the spotlight, it is becoming increasingly important to understand the potential impacts that wage errors can have on you and your business.

Your employees are your biggest asset, but are they being paid correctly? 

Pay compliance is extremely complex in Australia, because the award system is underpinned by multiple areas of interpretation. 

There is now a broad understanding that directors and executives can expect bad publicity, reputational damage, and financial loss if their company is held liable for wage errors. 

What is less known, however, is that the states and territories across Australia have moved to increase the penalties for wage underpayments. 

Victoria has now introduced legislation making it a criminal offence if the underpayment of staff is deliberate. 

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Under the new legislation, introduced on the 1st of July 2021, individuals found guilty could face up to 10 years' jail or be fined over $200,000, while companies can be fined up to $1,090,440. 

These new laws are not limited to Victorian-based companies. A company headquartered in say NSW, that deliberately withholds entitlements or pay for employees working in Victoria can be prosecuted. 

At a national level, the Federal Government is also seeking to increase penalties for wage underpayments. 

However, we are seeing a battle for additional industrial relations (IR) reform, with a strong push from large employer groups and industry bodies seeking to reduce the complexity of the award system.

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“The award system is complex but the employment conditions they describe are generally reasonable. Being compliant is not impossible. It requires an explicit understanding of the translation of the words of the agreement into the maths of a pay calculation. This is where the current confusion lies, this could be the right goal for IR reform.”

- Duncan Stone, CEO 

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Generally, it appears that companies do not intend to underpay or withhold entitlements from staff. 

In fact, employers tend to overpay as much as they underpay, and in the instances where a company overpays, it typically refrains from recouping any money, to avoid upsetting staff. 

Wage errors occur because payroll systems alone cannot be relied upon to consistently interpret Australia’s complex awards. 

Despite being unintentional, the potential for damage is still substantial. 

Fines are the tip of the iceberg. Back payments that span over a seven year period can quickly add up to a significant amount. 

The financial burden continues to grow when you factor in the cost of calculating the errors. 

As the last seven years of operations need to be reviewed, it typically requires a team of external consultants and accountants plus a team of internal staff to spend an extended period of time on remediation. 

All of these costs do not even take into account the reputational damage to the business and its senior management teams, which, albeit difficult to quantify, is likely to be the biggest cost long-term. 

We have seen increased damage to the reputations of companies across Australia as a result of wage errors in the past 12 months. The ‘wage theft’ narrative that is being produced results in companies not only damaging their reputation but also diminishes trust between themselves and their employees. 

In an era where the social licence to operate is of critical importance, companies simply cannot run the risk of making wage errors. 

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“For directors and senior executives, it is extremely important to maintain their personal reputation as it’s one of the most important qualities in advancing their career”. 

-  Stuart Harker, Chair of Retail Advisory Board 

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The consequences of wage underpayments for companies highlights the importance of payroll compliance. Companies must actively seek to ensure their employees are paid correctly.