Putting wage underpayments and the FWO approach under the microscope

29 November 2021

As many businesses continue to grapple with the complex laws around wages, mistakes can easily be made and quickly add up to substantial underpayments.

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The Fair Work Ombudsman and Registered Organisations Commission Entity Annual Report 2020-21 confirmed an additional 1,073 compliance notices were issued in the period 2020–2021, compared to the previous year; a clear sign that compliance is an issue business must focus on.  

FWO compliance resources 

In recent years the Fair Work Ombudsman (FWO) has shown its preparedness to apply its enforcement and compliance resources to businesses of all sizes. In some cases, it will act of its own accord, and in others it will act after receiving a complaint from an employee (or ex-employee). The FWO has a number of compliance resources at its disposal. 

Infringement notice 

An infringement notice is similar to an on-the-spot fine and may be issued by the FWO for minor breaches such as failing to comply with pay slip and, in some instances, record keeping requirements. The maximum fines payable are currently: 

  • Up to $1,332 per contravention for an individual 
  • Up to $6,660 per contravention for a body corporate. 

Compliance notice 

A compliance notice is a notice issued by a Fair Work Inspector which requires an employer to remedy a breach of a workplace law. The FWO will list the clauses of the industrial instrument contravened and the required action (e.g. calculate and rectify underpayments). If a compliance notice is ignored or no action is taken, the FWO can commence litigation.  

Enforceable undertaking 

An enforceable undertaking is a written agreement between the FWO and an employer who has failed to comply with a workplace law. The agreement can be used as an alternative to litigation and will require a commitment from the employer to rectify breaches and to take steps to stop it from happening again (e.g. training of managers, undertaking regular audits and/or mandatory reporting to the FWO). 

Litigation  

The FWO has the power to take businesses and individuals to court where there has been a serious breach, or a failure to comply with an undertaking or infringement notice. The outcome of this process may include substantial monetary penalties for the business and/or individuals associated with the business.  

It’s also important to consider that in Victoria employers who deliberately underpay their employees can face substantial fines and up to 10 years’ jail under the state Wage Theft Act 2020 (Vic). 

Be proactive! 

There can be a number of reasons why an underpayment can occur, and quite often it is unintentional. Here are some signs you are getting it right: 

  • You know the classification and modern award of your employees: One of the fundamental requirements to ensuring correct rates are paid is understanding which, if any, industrial instrument applies to the employee. Getting this right is vital but it’s not the end of the road. If an employee is covered by an award or instrument, the business must correctly identify which classification applies to certain roles. This is something which should be regularly reviewed as an employee’s role will naturally change and evolve over time. 
  • You have records of when your employees work (and a reliable time keeping system): To be able to demonstrate an employee has been paid correctly, a business must retain accurate accounts, recording for example, shift start and finish times, the time and length of breaks taken, and the time and length of overtime worked.
  • You undertake reconciliations: Paying an employee an hourly wage or an annualised salary is not as simple as ‘set and forget.’ Wages require careful assessment on a frequent basis to consider the pattern of work undertaken by the employee, the terms and conditions of the modern award, and/or any changes to base rates of pay (i.e. annual modern award wage increases).    

Make a change 

‘Going with the flow’ or accepting the way it has always been done can be dangerous. It can be difficult to know where to start, however, a simple first step can be to raise some questions in business operations meetings – “have we reviewed wages recently and what was our approach to the review?” or “How do we monitor wage compliance?” The answers to these questions may raise further questions and highlight uncertainties (or give you confidence that the business is on the right track). If you aren’t sure of the answers, note the questions down and give the Victorian Chamber a call.  

Have confidence  

Understanding wages and compliance can be overwhelming. Regardless of the size of your business, your industry or the issues faced, our Workplace Relations consultants are experts who can help you every step of the way and give you confidence. Contact our Workplace Relations Advice Line on 03 8662 5222 to speak to our team about wages, awards and entitlements.

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