The Press Club. Tokyo Sushi. Ezard. These three restaurants are just a few of the big names widely reported to be embroiled in the Fair Work Ombudsman's crack down on underpayment of staff. Its investigations have uncovered serious breaches of Fair Work legislation, affecting businesses across the hospitality, retail and dining sectors (as well as many other industries).
In the case of George Colombaris, the celebrity chef has admitted to underpaying his workers by $7.83 million, and has been ordered to pay a $200,000 fine. With heightened media attention and a new focus from employees on whether they are getting a fair deal, it's likely that many other high profile names will soon feel the heat from Fair Work. And it's not just monetary risks that these businesses face. The media has coined the new term ‘wage theft’ - and the reputational damage for anyone accused of this is going to be significant.
We ask the question why do businesses in these industries, as well as other industries that typically employ large numbers of shift or casual staff outside of the regular 9 to 5, find it so hard to pay their employees correctly, and what can they do to remedy this?
Paying workers fairly: What are the challenges?
Employers often don't understand their obligations under Australia's highly complex industry awards systems. For example, the Hospitality Industry (General) Award 2010 allows companies to work out how much an employee would be paid for a 38-hour week. They can then uplift that by 25% to recognise overtime, and pay this amount to the employee on an annual basis, as long as actual pay and total hours worked are reconciled annually, to ensure that the employee has been fully compensated for the time they actually worked.
However, the problem comes because staff in industries such as hospitality work long hours that can change frequently. If a business doesn't have an effective way of recording hours worked, or never goes back and checks how much overtime a staff member has completed, it is unlikely that it will be paying employees correctly. As such, whilst employers may take care to roster employees appropriately, employees could end up working 60- plus hours per week and not get paid correctly for this if a reconciliation is never performed by the employer. The media attention given to this issue is prompting staff to check their own wages, and when they find a breach, go to the unions, Fair Work Ombudsman and the press.
The issue is made more challenging because many businesses in these industries don't have a large or sophisticated HR department or payroll function - this may reduce the capability of the business to correctly review contracts, awards and rates of pay or perform annual reconciliations for those on annualised salaries.
What are the risks to businesses in this area?
There is no doubt that businesses are obliged to pay their employees correctly, fully and appropriately, and should do so in a timely manner. To do anything else is grossly unfair to employees, as well as to competitors who are doing the right thing and are dis-advantaged as a result.
Fair Work has recognised that there's an endemic problem with hospitality related businesses, and is directing its investigations towards these industries. This poses significant risks for any business found to be breaching of their obligations, including:
- Reputational damage: ‘Wage theft’ is not a term you want associated with your business, and the risk to business reputation is significant. The business’ ability to attract new customers and high quality staff in the future will be impacted.
- Financial impact: Companies found to be breaching their obligations may have to pay fines as well as compensation to employees, which may grow as the press becomes even more negative this is in addition to the clear requirement that they make good any historical underpayments to employees. Many hospitality businesses don't operate on high margins at the best of times, so unexpected employee costs together with monetary penalties could have the potential to end operations altogether.
- Immigration restrictions: Many employees in the hospitality and retail industries (and many other industries) are in Australia on work visas. Any Fair Work investigation is likely to be referred to the Department of Immigration and Border Force, and vice versa. These bodies will conduct their own investigations into how a company is paying workers from abroad. This may lead to restrictions or bans on employing people from overseas, as well as separate fines and additional adverse press coverage for breaching immigration law. Data-sharing has become much more efficient among government organisations, meaning the Australian Taxation Office and other government departments may also become interested.
- Criminalisation: There has been genuine political interest in criminalising Fair Work Act breaches, and the government has indicated that it is considering drafting further legislation around this. If passed, business owners and directors may face criminal charges and potential prison time if they are found to be underpaying workers.
How can businesses stay compliant with Fair Work?
Firstly, if a business believes it may have underpaid workers or otherwise be in breach of the Fair Work Act, it must deal with the issue quickly and honestly. The owners must work out how much they've underpaid their staff and start to remediate. This is essentially their only choice - if Fair Work doesn't believe the company is trying to remedy the situation, the case is likelyto go to court.
Moving forward, the business may need to reshape its workforce or business model. The problem is that many such businesses operate on such low margins that, had they been paying their workers correctly, their viability may be called into question. For companies that have not yet discovered a breach but would like to be more proactive in this area, there are several steps they can take:
- Develop a thorough understanding of the awards: There are complicated rules around roster patterns, rates for grades of employees, part time vs. full time, number of shifts a staff member can work, how many days off they can have, and length of time given between shifts. Support from professionals, including employment lawyers, will likely be a good idea in this regard.
- Create policies and procedures around time and attendance records: This is one of the most common errors we see at BDO. In retail there are often very basic paper timesheets, prone to manipulation and error, and without good sign-off and approval protocols. Even if a business has a digital solution, if there aren't thorough procedures around when an employee says they've started their shift (vs. when they simply arrive at the workplace), it's hard to keep track of who's working what hours and when.
- Offer training: Make sure front line employees and staff understand these formal policies and procedures to ensure compliance.
- Check that annual salaries actually match up to time worked: Another common error we see is that businesses will calculate someone's annual salary based on estimated hours under an award, but won't go back and check it correlates with the time an employee has actually worked. This is made even more difficult when shifts are incorrectly recorded or an employer offers alternative arrangements such as time in lieu.
- Audit periodically: Regular sample testing and independent checks are a must. This will ensure that employees are following time-recording processes correctly and that payroll teams are checking annual salaries against the hours staff members have actually worked.
How can BDO help businesses stay compliant with Fair Work?
BDO can offer a number of monitoring, assurance and remediation services in this area. When a business owner believes they may have made a mistake in their employee payments, we will take their historical records and work out what the company has paid its employees, and compare that to what it should have paid under the relevant award in order to calculate how significant the problem is. We have developed technology and data driven processes and solutions in order to efficiently perform these activities.
Where awards are complex or a government body is involved, we will often work alongside employment lawyers, as well as immigration lawyers, to ensure we have the legal bases covered.
Our data and IT teams are well placed to support organisations with date collection, record restoration, manipulation and analytics to support correct determination of actual hours worked by employees.
We help businesses identify their workforce of the future, redesign operating models and areas of process improvement, and shape their organisation culture. Once initiatives are identified we support businesses to transition to new ways of working and implement new systems and procedures and can assist in providing periodic and ad hoc sample-based auditing to check all the business' processes and systems in this area are operating correctly. BDO are able to use future-focussed modelling tools that help organisations investigate how various shift patterns will affect their business and employees. This means a company can work out how to remain compliant with Fair Work while still operating a viable business model.
The BDO team offers assistance where a business feels it needs help by creating robust policies and procedures. We have a team of outsourcing payroll specialists, and also work alongside third-party time and attendance solutions and payroll providers to ensure you have all the tools you need to remain compliant.
If you would like to find out more about Fair Work compliance and our other People Advisory services, please contact the team at BDO today.