Without the right business advice, the cost of wage and entitlement underpayment could lead to jail!


Without the right business advice, the cost of wage and entitlement underpayment could lead to jail!

Business owners need to ensure they get the right advice to ensure they are adhering to all the different awards in relation to employee wages and entitlements, as breaches of the Fair Work Act can be a criminal offence that can lead to severe fines or even imprisonment.  Ignorance is no defence! 

The high profile 7-Eleven wage abuse scandal created widespread outrage in 2015-2016 after the household name and Australian franchise industry leader was found to have exploited vulnerable workers, resulting in new legislation and regulations to protect workers. And while the individuals found to be responsible did not go to jail, they have received a significant penalty with a fine of $350,000.

While some breaches of the Fair Work Act are criminal offences, and individuals can be fined or even imprisoned if they break these laws, the majority of penalties in regard to the Fair Work Act are in the form of civil penalties.  Those penalties range from up to $12,600 for individuals and $63,000 for companies, for each contravention.  In the case of serious contraventions, those penalties could be as much as $126,000 for individuals and $630,000 for companies.  And that’s not just the employer – the Fair Work Ombudsman can also take action against people who were “involved in” the company’s contravention, and that may include company directors, HR managers, accountants or even a business involved in the supply chain (e.g. labour hire company).

As such, it’s essential that business proprietors and even business managers and key HR personnel get the right business advice.

In the case of 7-Eleven, many of the stores were found to have seriously underpaid their largely young, migrant workforce. This was done by either paying significantly less than legally required or, alternatively, by paying the legal minimum but demanding that staff “pay back” a component of their wages to the employer.

This led to investigations that revealed that the franchisor (the 7-Eleven organisation) had effectively caused the situation because the franchising arrangements were such that it was impossible for the stores to make a profit unless they underpaid their staff.

Migrant Workers Taskforce

This high-profile case, as well as a number of others, then led to the Migrant Workers’ Taskforce being formed. The Taskforce headed up by former ACCC boss Allan Fels released its damning report earlier this year. As a result, the Federal Government accepted, in principle, all 22 recommendations from the report, which has advised unprecedented changes to Australia’s workplace law regime.

Delivering a scathing verdict on the current rules, the taskforce recommended unprecedented changes to Australian workplace law, including tougher penalties, an expansion of Fair Work Ombudsman (FWO) powers and the establishment of a national registration scheme for labour-hire firms.

As a result of widespread media coverage of this high-profile case, we’ve had a number of clients who have used our business advisory services to seek help with their own complicated wage obligations, or even just get an independent opinion on whether they have calculated wages correctly.

Seek business advice as ignorance is no defence

From our experience, the most commonly affected are medium-sized businesses rather than large or small. That’s because large organisations have professional inhouse resources to provide advice. But it’s the medium-sized businesses that don’t have access to regular advice that are most likely to break the law, usually in ignorance rather than deliberately. They also have lots of employees with lots of different awards applying to their wages and other entitlements.

However, ignorance is no defence for underpaying staff entitlements. And while it’s not usually the role of an accountant or business advisor to pick up on when something’s going wrong in a client’s business, they are in a unique position to provide advice. As an advisor, you should see red flags like arrears in tax and other payments, payment demand notices, and non-financial signs such as high staff turnover or a lack of maintenance being undertaken.

Complicated award structures

One of the main reasons that business owners are inadvertently underpaying staff entitlements is the level of complication in Award structures. Within any given industry there can be many Awards governing workers’ entitlements, and these will vary greatly.

If, for example, a company employs people who work different shifts, that might involve different rates or entitlements depending on the day of the week they work or time of day. It becomes messy when they swap shifts with others, take leave, or other perfectly acceptable changes, and it’s really easy to make payroll mistakes.

And award structures are not a static situation because unions are continually negotiating new allowances for members and awards are constantly altered. Sometimes the entitlements are quite ridiculous. During the building of Darling Harbour in the late 1990s, workers received a ‘Chinese Food Allowance’, that was negotiated by their union because they could constantly smell Chinese food in Chinatown adjacent to the building site.

Compare that to a recent matter in which a Brisbane café was alleged to have breached workplace laws by paying its staff (primarily visa holders and workers under the age of 21) with food and drink, instead of lawful entitlements such as overtime and penalty rates.

And what about the long-term consequences of the recent decision of the NSW Compensation Commission who in the past few days found that a contestant was legally an employee of Channel Seven when she appeared on the reality show House Rules in 2017, and was therefore entitled to claim compensation for psychological trauma in relation to her claims for harassment and bullying?

Workplace laws keep evolving and it is a challenge for employers to keep up to date with changes.

 Not just back wages

We are currently working with a client who could owe up to $1 million in wages, entitlements and payments. This goes back seven years and there are plenty of other businesses who have similar issues – many of whom may not even be aware that they have an issue yet.
In these cases, it’s not just unpaid wages, it’s also payroll tax, workers compensation, group tax and superannuation. The ATO imposes penalties as well as charging interest so the bill can grow and grow. It’s also hard to track down former employees, particularly if there’s a high number of short-term or part-time workers involved.

It’s never too late to seek external business advice to help avoid the pitfalls that all business owners can face.

Please contact Suelen McCallum on 02 9633 3333, email mail@dvtgroup.com.au or complete our online contact form to find out more about how we can help you or your client with the evolving workplace laws. 

 dVT Group is a business advisory firm that specialise in business turnaround, insolvency (both corporate and personal), forensic services and business strategy support.