Unpaid wages bill hits $1.4bn annually

Fair Work ombudsman Sandra Parker in her Melbourne office. Picture: Aaron Francis
Fair Work ombudsman Sandra Parker in her Melbourne office. Picture: Aaron Franc

As much as $1.35bn in wages are underpaid each year according to new estimates that underline the risk to business from moves to criminalise so-called wage theft and amplify calls for an overhaul of the awards system to reduce complexity.

Estimates from accounting firm PwC suggest underpayment affects as much as 21 per cent of employees in high-risk industries such as construction, healthcare, retail, accommodation and food service, and as much as 13 per cent of the total workforce.

Construction is the biggest risk area, with as much as $320m in annual underpayment of wages, according to the modelling of Fair Work Ombudsman data by PwC chief economist Jeremy Thorpe.

PwC said the rash of reports of underpayments was the result of a number of factors including the complexity of awards, reduced checks because of the decline of union representation and underinvestment in payroll services by companies.

PwC payroll consulting practice leader Rohan Geddes said employers were caught in a perfect storm, with a high risk that “inadvertent” mistakes across a large workforce could add up to large numbers.

Australia’s publicly known worker underpayment bill recently soared past $500m, after supermarket giant Woolworths admitted underpaying almost 6000 employees by up to $300m over nine years.

Other high-profile cases include 7-Eleven ($150m), Supercheap Retail ($32m), Michael Hill ($25m) and the ABC ($23m).

According to the Fair Work Ombudsman Sandra Parker, 22 separate large underpayments by big companies have been revealed in 2019 alone, tipping the FWO into the “corporate regulator space” for the first time.

Attorney-General Christian Porter has accused companies of being “hopeless” when it came to ensuring workers were properly paid. He said many employers spent more time on minimising tax than their workplace obligations.

The government is examining introducing maximum jail terms of five to 10 years for deliberate, systemic cases of wage theft, with potential criminal penalties confined to the “most serious types of offending”.

Civil penalties will also be increased. Mr Porter will shortly release a second discussion paper proposing sanctions against directors of companies that underpay staff and a new claims process for underpaid workers in the Fair Work Commission.

Mr Geddes said the complexity of the award system, such as agreements containing multiple clauses for different grades and types of employees, multiplied the risk of errors that could turn into large sums.

“Payroll converts legalese into system code,” Mr Geddes said.

“The less times you have to do this the less scope there is for mistakes.”

Underpayment is one of a series of sleeper issues for business in 2020 identified by PwC in its Australia Matters analysis. Others included the opportunity to add $40bn in economic growth by 2040 from increasing the digital skills of the workforce, coping with slow growth and encouraging local capital to stay in the Australian market.

PwC chief economist Jeremy Thorpe said big investment funds were increasingly looking offshore for investments to seek higher returns than those available in Australia, in part because of the lack of innovation in the local market. But business should be looking to improve research and development spending, and challenging governments to facilitate this as an “antidote” to local capital flight.

PwC said the rash of wage cases had been sparked mostly by self reporting, although some companies had got in ahead of planned legal actions by employers that had noted the underpayments.

The falling union presence in Australian workplaces was among the contributing factors to the rash of underpayment cases because it had led to a decline in the policing of employee entitlements for particular industries.

It had also slowed the rate of bargaining for enterprise agreements, meaning employers were covered by general rules that were subject to change.

Industrial relations have shifted from state to national arrangements with more than 1500 workplace instruments condensed into 120 modern awards governed by the Fair Work Act.

“The Fair Work Commission has had a lot to take into account,” Mr Geddes said. “It is a complex process going from a state-based industrial relations system to federal awards and we should not underestimate the difficulty involved in that.”

Those awards had multiple clauses for rates of pay, safety nets and other entitlements that differed by job, skill level and ­industry.

Some common industry awards contained more than 10 separate rules affecting overtime accrual while annualised salary provisions and other requirements created “a broad runway for errors to be made by employers”.

The rash of reporting by companies has also led to calls for more resources to be provided to both the Fair Work Commission, which creates, endorses and ­reviews industrial awards and the Fair Work Ombudsman, which is said not to be equipped to cope with such a large volume of cases.