The underpayment crisis: how we move forward

24 February 2020

Ben Renshaw, Partner, People Advisory, Global Expatriate Services & Employment Taxes |

You don’t have to look far to see the impact the underpayment crisis is having on the Australian economy. Corporate staples like Woolworths, Coles, and Target are just a few of the latest organisations whose payroll has been called into question and whose reputation has taken a hit. 

One thing is clear: employers have not been diligent in making sure they’re paying their employees what they should. And it only takes one person to say “I worked more hours than my contract and I wasn’t paid for them,” for it to blow up. 

It is the responsibility of each and every employer to do right by their employees. Now more so than ever as the landscape paints a troubling picture for any organisation looking for sympathy in the public eye. But as is the case with problems of this magnitude, there is no one simple solution and often not one single cause. There is an opportunity for government and industry to work collaboratively to drive better outcomes for the Australian economy and its employees.

How we got here

We hear this issue referred to as ‘wage theft’ often splashed on the front page of newspapers and websites, a testament to a frustration that has reached a boiling point. But industry analysts will tell you it's not theft if it's unintentional. 

This crisis was driven by a lack of diligent focus on employee pay, complex and confusing award terms and conditions, inconsistent approaches, and a whole host of reasons that aren’t necessarily intentional but often driven by negligence. Often we find that even something as basic as payroll solutions are either not fit for the intended purpose or are not being configured or used correctly. Organisations commonly assume their payroll systems are doing much more than they actually do or were designed to do. Despite this, the mentality for some of these corporate offenders is that's how operations work and that's how they’ve always worked.

But business as usual isn’t working - just ask George Calombaris, the celebrity chef and restaurateur who until recently was head of a food empire. After being embroiled in wage disputes with employees the chef’s company collapsed with creditors including the nation's biggest bank. And he’s not alone, large organisations like Target, Coles, and Qantas have found themselves in similar states as public outcry for companies to do right by their employees hits an all-time high. 

What we’re seeing today is a direct reflection on the significant under-investment in the payroll, HR and industrial relations teams of these large companies. The pursuit of revenue and growth is an important aspect of any business but so is the legal and moral responsibility these organisations have to their employees. And while hindsight is 20/20 perhaps an investment into an IR team early on that put a premium on compliance could have saved an organisation like the empire George Calombaris built.

Where to from here?

The crisis is real and it requires real solutions, unfortunately, the solutions driven by government agencies are often met with underfunding and overworked staff just trying to keep up. Keeping businesses compliant under these conditions can be impossible at best. But perhaps there is another solution: the Superannuation Amnesty proposed in the Senate right now could hold the key to a new way of thinking. If we apply similar aspects featured in the proposed amnesty program to employers and give them an allotted time deadline to make the necessary changes with no penalties the benefits could help course correct the entire country:

  • Amnesty over a set period gives time for companies to get their houses in order
  • It gives agencies like Fair Work the time they need to optimise their own staffing, technology, and approach to compliance 
  • It gives time for a detailed review of all the various issues at play, including a non-partisan approach more similar to a royal commission than a senate review. A review like this could make meaningful recommendations and changes that would be felt for years to come.

Critically, once the amnesty period is over penalties for breaches should ramp up and have real consequences. If the potential penalty was 100% or 200% of the breach, coupled with the public disclosure, removal of directors and criminal charges where appropriate (as proposed by the Attorney General recently), organisations would be even more motivated to give this issue the attention it deserves.

Some people oppose Amnesty provisions because they believe businesses should have been doing the right thing from the start, no sympathy. I can see that view, but we’re clearly not in that situation. Very few people are getting this right. And it's not entirely down to their own misconduct, it's down to the complexity of the situation. 

The million-dollar question comes from every aspect of the Australian working world but key industries hold opportunities for improvement like never before. Industries like hospitality, retail and tourism – all key to a strong economy - can be the ground zero for a new wave of corporate responsibility and government oversight. Right now there is an opportunity for government, and agencies like Fair Work, to collaborate with the business world to simplify the employee landscape to drive better outcomes for everyone - employees, employers and Australian consumers who rely on these industries.

How do companies do better?

In terms of getting it right now, as an organisation you really have to ask some tough questions: 

  • Have we done it right? 
  • Are we sure? 
  • Are we completely sure? 
  • If we are sure, can we prove it? 
  • And if we can prove it today, what about in 6, 12, or 24 months' time? 

So now is the time with the landscape and the environment that we’re in to do the right thing. Go back and review what has always been done, make any amendments or adjustments that you need to make and ensure you’ve got a robust process that keeps you on top of this going forward.

Awards are constantly evolving and changes do happen. However, things like the Annualised Salary ‘simplifications’ stand to potentially add more complexity to the process and further increase the burden on employers. 

It should be no surprise that a corporate entity has a responsibility to its employees to do the right thing. But pay compliance has become a thorny, wicked problem. We have to keep in mind the outcome we’re trying to achieve - high employment, a strong economy, and people being paid fairly. We need to encourage innovation and growth to make sure Australia is as productive as possible.