Employers can find it challenging to correctly navigate, interpret and implement the correct classifications for their employees. Some common industry Awards contain over 10 separate rules that affect overtime accrual which can be problematic for an overworked payroll team, who may not have the training or skills needed. Complexity of the Award system is a significant contributor to the underpayments issue. Unfortunately, small errors over a long period can expose employers to the risk of substantial financial penalties.
In an effort to combat the increase in wage underpayments, the Fair Work Commission has introduced model annualised salary clauses to be inserted into a number of Awards, many with widespread coverage including the Clerks – Private Sector Award, the General Retail Industry Award, the Banking, Finance and Insurance Industry Award, and the Manufacturing and Associated Industries and Occupations Award.
The model clauses do vary depending on the Award but overall it is fair to say that they impose significant obligations on employers wanting to pay full-time employees an annualised salary under the Award. Obligations include detailed reports including getting employees to record their start, finish and break times, identifying an outer limit of ordinary hours that can be worked before overtime and penalty rate hours would arise, having employees sign off on their hours every pay period and conducting regular reconciliations to ensure the annual salary is sufficiently high to absorb all award entitlements.
It is anticipated that these new clauses, effective from 1 March 2020, will assist in minimising underpayment risk for employers paying annualised salaries. However, the requirements are hugely onerous on businesses and will no doubt cause employers real challenges. This not just being from the perspective of compliance, but also the risk of a cultural shift (and likely not a good one). Given more businesses are offering increased flexibility around when, where and how their employees work, there have been much criticism of the annualised salary provisions and the concern that they will take the workplace backwards in terms of flexibility, reverting to a clock in/clock out, "clockwatching", time based approach.
That being said, it appears that there is the option for employers to decide to not follow the annualised salary arrangements in any applicable Award and implement or continue to rely on set-off clauses in their contracts of employment. The FWC has indicated in its decision regarding annualised salary provisions1 that employers can make arrangements under an employment contract without engaging with the annualised wage arrangement clause in the applicable award:
“… an employer is able to pay an employee to whom an award applies an annualised salary arrangement that compensates for or “buys out” various identified award entitlements without engaging with any annualised wage arrangement clause in that award and without there needing to be an annualised wage arrangement clause in that award…The model clauses do not seek to invalidate or regulate any such contractual arrangements.” [our emphasis]If this option is something that your organisation would like to consider, we can provide advice on the relevant considerations, the "pros and cons", and in practice how your business could go about it. Ultimately, however, the question remains as to how an employer would satisfy the regulator or a disgruntled employee that the annualised salary was sufficient to absorb all the other entitlements under an award if the employer does not actually know what hours the employee has worked.
"will hold them to account for breaching workplace laws… [corporates] must understand that admission is not absolution. Companies should expect that breaking workplace laws will end in a public court enforcement outcome".Currently, the Fair Work Ombudsman operates as the independent federal employment watchdog, tasked with investigating and prosecuting workplace complaints, and enforcing compliance, including ensuring employers are paying employees their minimum entitlements. The Fair Work Ombudsman has far reaching powers of investigation, including power to enter employers' premises, to inspect any records and documents or interview anyone, as well as the power to require a person to produce records or documents. Generally, these records or documents include employee records such as rosters and payslips, which can help the Fair Work Ombudsman establish the underpayments. The Fair Work Ombudsman in some recent cases has required employers to enter enforceable court undertakings, which can include some fairly onerous requirements, such as implementing a new payroll system, apologising to workers, and auditing pay for a number of years into the future.
Breaches of the Fair Work Act can lead to orders for the repayment of the underpayments and attract penalties of up to $63,000 per contravention for companies and up to $12,600 per contravention for individuals. In cases of serious contraventions, being when the person or business knew they were contravening workplace laws and the contravention was part of a systematic pattern of conduct, penalties can be up to 10 times as much, so $126,000 per contravention for individuals, and $630,000 per contravention for companies.
Directors and managers are not beyond reproach, with directors and even HR representatives of companies found to have been underpaying employees being personally held accountable. This means that, in circumstances where the director and/or HR representative were "knowingly involved" in a contravention, the individual can be personally fined.
A comprehensive audit should highlight any weaknesses in the payroll system and provide recommendations. Employers should ensure their payroll team is properly resourced and companies should invest in their technology so that their systems and record keeping procedures are up to date.
The office of the Fair Work Ombudsman is staffed and ready to investigate companies who may be in breach of the Fair Work Act. In this competitive landscape, it is important for companies to remember that their employees are their greatest asset.
If you have any queries or concerns about your business' compliance with Awards or enterprise agreements, annualised salaries, or the upcoming changes on 1 March 2020, please reach out and get in contact with us.
Nicola Martin, Principal in McCabe Curwood's Employment group publishes monthly vlogs to help employers navigate all manner of legal issues. Her vlog discussing some recent high-profile wage underpayments cases, and the need to audit compliance with relevant industry and occupational awards can be found here.
1 4 yearly review of modern awards - Annualised Wage Arrangements  FWCFB 4368 at .