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Underpaying staff can cost you more than you think!

Emily Shoemark

22 Jul 2019

Topics

  • Employment Law

All employers in Australia, under the National Employment Framework, must employ staff in accordance with the Fair Work Act 2009. However, many employers don’t realise that if staff are underpaid the cost can be much greater than just rectifying the underpayments. In this article, employment law specialist, Emily Shoemark, looks at a very public example of the risk employers take when they neglect to properly understand their obligations under the Fair Work Act, and how Snedden Hall & Gallop can help you if you think you have made a mistake.

There’s been much publicity about the underpayment of staff by MAde Establishment Pty Ltd (MAde), of which MasterChef star George Calombaris is a founding and current shareholder. MAde self-reported to the Fair Work Ombudsman (FWO) estimated underpayments of $2.7 million in 2017. Since that time, the FWO has further investigated the extent of the underpayments and  found wage and superannuation underpayments to staff to the tune of over $7.8 million.

The FWO investigation

The FWO has identified 6 years of noncompliance with industry standards as the cause of the incorrect payments. FWO inspectors indicated that the huge underpayments occurred because the group failed to correctly apply industry standard salary arrangements, including failure to:

  • conduct annual reconciliations to check wage staff were being paid for overtime worked
  • pay appropriate penalty rates, such as penalty for working through a meal break, and early morning and evening penalty rates
  • keep a record of start and finish times for employees on annualised salaries.

These errors have been identified by Mr Calombaris as a product of ‘historically poor processes in classifying employees’ that meant that a raft of penalty and overtime entitlements were not recognised.

As a result of the investigation, MAde and Mr Calombaris have entered a court-enforceable undertaking (CEU), which has been entered in the FWO requiring the following:

  • MAde is to pay a $200,000 ‘contrition payment’ to the Commonwealth Government’s Consolidated Revenue Fund
  • MAde must self-fund external auditors to assess the pay and conditions for employees of the entire group, on a yearly basis, until 2022
  • Mr Calombaris must complete a minimum of seven speaking engagements to prominent industry audiences, to assist in the education of the restaurant industry on the importance of workplace compliance
  • MAde must publish a written public apology in several mainstream and industry-relevant media channels.

All underpayments have now been back paid to over 500 current and former employees, totalling just over $7,800,000. The Fair Work Ombudsman Sandra Parker said that the ‘massive back-payment bill should serve as a warning to all employers that if they don’t get workplace compliance right from the beginning, they can spend years cleaning up the mess’.

Benefits of self-reporting

As MAde self-reported the suspected issue, it maintained some control over the outcome and was able to take steps to rectify the problems and work with the FWO to reach agreement about the undertaking.

If an employer doesn’t self-report noncompliance, it can face legal action by a union, an employee or the FWO (which has the power to investigate and prosecute) for breaches of the Act. If such action ends up in the Court, the Court can order civil penalties against both the employing company and any individuals involved in the contravention – including directors and HR managers. The maximum penalties are $12,600 per contravention for an individual and $63,000 per contravention for a company.

Due to the number of contraventions and the extended period over which MAde was in breach of the Act, if MAde had not self-reported, both the company and its directors could have been ordered to pay significantly more than the $200,000 contrition payment under the CEU in civil penalties.

Rectifying the mistake

Importantly, MAde could easily have avoided these mistakes had they taken steps to ensure they understood industry law and applied the correct classification to their staff.

The FWO recognises that underpayments usually happen because a mistake has been made. It’s important that, once you’ve identified the error, you immediately take steps to rectify the issue and put in place processes so that underpayment doesn’t occur again.

The FWO recommends the following steps to fix an underpayment:

  1. Work out how long the employee has been underpaid
  2. Work out how much the employee was paid
  3. Work out how much the employee should have been paid
  4. Calculate how much the employee has been underpaid
  5. Backpay the employee
  6. Keep up to date with future wage increases and industry standards.

How Snedden Hall & Gallop help?

Our Employment Law team can assist you in understanding your obligations as an employer and the specific laws applying to your industry. We can help you put in place the right processes and documentation to ensure that you are compliant. You can contact us on 02 6285 8000 or by email.