Wage underpayment is a serious issue that requires a comprehensive approach involving technology and compliance. Recent news highlights have shown that even well-established companies face significant challenges related to wage underpayment.
Importantly, this issue is not only a concern for employees and boards but also carries potential personal liability for Directors, whom are at risk of facing severe consequences under the existing Fair Work Act and upcoming legislative amendments. These include criminal liability, personal liability for breaches of directors’ duties, personal liability for insolvent trading, and reputational damage associated with ‘wage theft.’
Several factors contribute to the prevalence of wage underpayments in Australia’s corporate sphere. Legislative changes, technological advancements, and insufficient investment in payroll functions all play a role.
Australia’s complex employment laws, with numerous Modern Awards and enterprise bargaining agreements, make it challenging to identify historical and current underpayment issues accurately. The interpretation and application of penalty rates, rostering requirements, award classification and other entitlements within these agreements add to the complexity.
While technology has improved the efficiency of payroll functions, it has also led to underpayment issues that are difficult to detect. Investment in new technology may result in data loss or improper migration, leading to incorrect entitlement calculations. Outdated payroll systems may struggle to accurately apply the variables present in modern awards. Automation can lead to undetected errors applied across entire workforces due to coding or data entry mistakes.
Given the prevalence of underpayments and the associated corporate and personal risks, Australian businesses should consider the following:
Forward-Looking Compliance – Ensure reporting methods allow directors and business owners to fulfil their duties related to the payroll function’s proper discharge within the business.
Historical Compliance – Conduct thorough audits to identify and rectify any underpayment issues.
Solvency Assessment – Assess if underpayment liabilities pose solvency concerns for the business. If so, ensure directors are protected from insolvent trading liability.
By addressing these considerations, businesses can proactively combat wage underpayment and protect both their employees and their directors and board members from potential legal and reputational harm. Compliance is key and regular checking is instrumental.
With underpayment of employees a real risk for businesses across Australia, it is vital to take effective measures in order to prevent this serious issue from occurring. If you need help developing and implementing processes in your workplace to reduce exposure, get in touch with our team.
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