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Managing the operational demands of payroll is challenging, and the complexities of the Australian employment and industrial relations system only add to these difficulties. Taking into account the further layer of tax and superannuation laws, it is not uncommon for issues to inadvertently and mistakenly arise.
As such, wage compliance has always been at the forefront of risk assessment for organisations large and small. An audit process is an opportune time to not only rectify past issues (if there are any) but also take on board feedback that is likely to streamline and improve practices moving forward.
This blog post considers the key issues for employers, to provide confidence from a risk perspective that organisations are “getting it right”.
Why audit now?
Over the past 5 years, we’ve seen more changes to the employment and industrial relations system than ever before, including:
The 2017 “vulnerable workers” changes to the Fair Work Act.
Extensive changes to modern awards resulting from an ongoing review by the Fair Work Commission, including the introduction of new annual salary award provisions to certain modern awards in 2020.
Progressive increases to the super guarantee rate from 1 July 2021.
An increased focus on “ghost” enterprise agreements made under the Work Choices regime (before the Fair Work Act came into effect).
The 2021 changes to casual employment under the Fair Work Act and introduction of super stapling laws.
There is no doubt this area of law has become one of significant focus in recent years, with pay claims on an individual, Fair Work Ombudsman, union and class action level growing and receiving increased (sometimes high profile) media attention. Every industry has been impacted, with the cases extending from businesses in hospitality, restaurants and retail to banking and finance.
What are the consequences when things go wrong?
Wage audits allow employers to identify areas of risk and rectify any issues before they escalate. Payroll and wage compliance errors, including those that result in underpayments to employees, can constitute contraventions of the Fair Work Act, including of:
Section 44, in relation to compliance with the NES.
Section 45, in relation to modern award compliance.
Section 50, in relation to enterprise agreement compliance.
Section 323, in relation to the statutory requirements for the payment of wages.
Sections 535 and 536, in relation to record keeping and payslip obligations.
Under the Fair Work Act, orders for backpayment and fines can apply and individual liability can be imposed on those “involved in” any such contraventions. Such fines can multiply ten-fold for “repeat offenders” involved in what the Fair Work Act terms serious contraventions.
In addition, Queensland and Victoria have recently introduced laws criminalising wage theft with other states expected to follow suit.
All of this, in turn, can have significant consequences for employers in terms of legal, HR and reputational risk and exposure.
Where could we be going wrong?
In our experience, wage compliance issues can arise from a variety of sources including:
The incorrect application of a modern award or enterprise agreement, which is not uncommon as classification under these instruments is complex! There are more than 120 modern awards with broad industry and occupational coverage and, despite a commonly mistaken view otherwise, most employees fall within their scope.
The incorrect application of rostering rules, often resulting from day-to-day imperatives such as “shift swaps” or change in employee status (for example from part time to full time).
Incorrect assumptions being made about the “wrapping up” of minimum entitlements such as overtime, penalty rates, allowances and loadings into above-award wages.
Historical practices that haven’t been updated to reflect changes to the law, for example contractual hours of work provisions or “voluntary overtime” arrangements that no longer meet the minimum requirements at law.
Systems errors which, unfortunately, are not uncommon given the complexity of pay rules under modern awards.
How to audit – scope and cost
Planning ahead is critical to ensure wage compliance output meets the objectives going in – no audit project will ever be identical to another. Matters bearing upon the scope and conduct of any such audit will necessarily vary from organisation to organisation, including:
Budget and time pressure.
The size of the employer’s business or businesses.
The nature and extent of any previous/known non-compliance issues.
The complexity and extent of industrial instrument coverage (for example the number of applicable modern awards/enterprise agreements).
Changes to the law and/or regulatory considerations.
Any recent organisational (structural) change/s.
Given the range of factors relevant to an audit process, we recommend employers seek legal and other advice prior to commencing any audit project.
Interested in learning more?
The Workplace can assist businesses large and small in payroll and wage audits. Depending on the scale and nature of these projects, The Workplace will help you “team up” with the right experts to ensure projects are managed effectively and commercially. To find out more, please contact us on 02 8999 3300.
The copyright in this blog is owned by The Workplace - Employment Lawyers Pty Ltd. The content is general information only and is not intended to constitute, or be relied upon as, legal advice. The use of this blog by any person or company does not create any solicitor-client relationship between the person or company and The Workplace - Employment Lawyers Pty Ltd.