Underpayment of wages: how to prevent, identify and rectify issues | PerformHR

Underpayment of wages: how to avoid being subject of a scandal

Cases of underpayment of wages (or wage theft) have been regularly featured in the news. From Bunnings to Woolworths, Crust and Rockpool to Qantas, and countless celebrity chefs, the problem is rife.

Of course, big names make big headlines, and while Woolworths has come forward and admitted it underpaid over 5700 staff to the tune of $300m, Rockpool has been accused of deliberately destroying and doctoring time sheets – something which they’ve denied.

It’s not just an issue that affects big businesses, though. It’s estimated 79% of hospitality employers fail to provide the entitled wage to their staff, and 2.98 million employees have been underpaid a total of $5.94bn.  

Traditionally, government auditing of this issue hasn’t been too widespread. During the Fair Work Ombudsman 2012-2015 National Hospitality Industry Audit, a mere 2.6% (or 1,066 businesses) of the industry were audited. This led to findings that 58% were non-compliant.

Things are heating up, however, and the government is focusing on this issue – the Attorney-General is drafting laws criminalising the exploitation of workers.

So, now’s the time to be proactive and undertake your own review to ensure your business is compliant and isn’t likely to be subject to criminal charges in the months and years to come.

Five steps to audit your payments to employees

  • Review and update all employee information on your staff database to be in alignment with the updates to the National Employment Standards, modern awards or enterprise agreements, their contracts of employment and any recent case law.
  • Audit all staff pay records to ensure they are compliant with the entitlements owed to an employee when the payments were processed.
  • Identify any discrepancies that arise from the historical audit and notify the employee.
  • Back-pay all owed entitlements that historically were underpaid.
  • Audit compliance process to reduce risk of future and repeat underpayment of wages and benefits.

The essential thing here is to be proactive. By demonstrating that you have chosen to explore, investigate, and (when necessary) remedy any underpayment of wages issues, you will show a commitment to doing the right thing by your staff.

What should you do if you uncover a case of underpayment of wages in your business?

The Fair Work Office suggests the following steps in rectifying underpayments:

  • Determine the duration of the underpayment.
  • Determine the amount actually paid.
  • Determine what the entitlement was.
  • Calculate the difference.
  • Make a back-payment.
  • Identify the root cause of the error, and implement systems to prevent another occurrence.

How can you put the correct systems and processes in place within your business?

In order to reduce the risk of non-compliance, these six steps are critical:

  • Ensure you have an understanding of employee entitlements, bringing in outside expertise where necessary.
  • Provide payroll staff with the tools and training to understand employee entitlements and how to find changes as they arise.
  • Allocate a team lead or have a specialist who is the port of call when uncertainty arises with respect to an employee’s entitlement.
  • Ensure employees are able and comfortable to raise concerns regarding their entitlements as they arise, rather than potentially years after the fact.
  • Regularly review changes published by the Fair Work Commission and Fair Work Ombudsman.
  • Ensure your employee records are kept for a minimum of seven years.

The sixth point here is critical, and will support any future investigations.
Don’t wait until you have an issue. The value of implementing systems to avoid underpayment of wages applies whether or not you discover any wrongdoing.

So, what's the risk of getting it wrong?

As well as financial implications for your staff, and potentially bringing criminal charges to your door, underpaying employees can have a significant business impact, too.

From your reputation in the market – with customers, clients, suppliers and staff – to employee retention and motivation, the negative reputation that comes with underpaying staff can be devastating for a business.

It’s simply not a risk worth taking.

If you would like some expert help and guidance to ensure you’ve paid your staff correctly, and have the systems and processes in place to do things transparently and accurately moving forward, talk to us today.

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