19 Feb Wage underpayments, wage underpayments, everywhere!
We’ve all heard about the wage underpayments that occurred at the 7-Eleven franchise. The Fair Work Ombudsman (FWO) was receiving complaints about this franchise for years, but it all seemed to explode in 2014, when the FWO conducted audits of twenty 7-Eleven stores. The FWO found breaches in 19 of the stores, and serious wage underpayments occurring in 7 of the 20 stores. After that, it seemed every week we were hearing about wage underpayments.
So how widespread is the problem? In the 2016-2017 financial year, the FWO received more than 10,000 anonymous reports, many concerning wage underpayments. The FWO issued almost 700 infringement notices to organisations, commenced 55 court cases against employers, and recovered more than $5 million for workers. Many believe this is the tip of the iceberg.
It’s fair to say, the underpayment of wages problem is a big one. But those that choose to take the risk of underpaying their staff, now face major penalties, following changes to legislation in September last year. Individual business owners and managers (including Human Resource Managers) can now be fined up to $126,000 each, if they are found to have been contributors to the underpayments. Corporations can be fined up to $630,000.
Record fines
Even before the increase in penalties, the FWO had been prosecuting employers and some paid a heavy price. It’s been like lambs to the slaughter! In August last year, a Melbourne fruit market was fined $660,000 (excluding the back-pay), for underpaying its workers. One employee in particular was underpaid more than $25,000 in a four month period. The worker was paid between $3.29 and $9.29 per hour, when the Retail Award at the time was $17per hour for normal hours, and up to $35 per hour on weekends.
The cash-back scam
Prior to this, an Albury café was fined $530,000, for exploiting overseas workers. As well as underpaying its staff, the owners engaged in a cash-back scam, where workers were paid a wage, received pay slips, payments were made into their bank accounts, but then they were expected to give back (in cash) 30%-50% of their wage. This common scam, also occurred at 7-Eleven and the Coffee Club.
Child care operators caught underpaying their staff
The FWO has also been pursuing childcare operators, and cleaning companies in Melbourne and Sydney. A childcare operator was fined $85,000 (in January 2018), for underpaying two staff members a total of $14,340. The owner had previously been fined more than $19,000 for similar breaches in 2014. A cleaning company in Sydney was fined $370,000, with a former owner receiving an individual fine of $74,000, and the company was also ordered to back-pay $223,244 to its employees. The company had used sham contracting, where employees were paid well below award rates, by working as contractors with ABNs and submitting invoices in order to be paid.
Medical centres underpaying their staff
Underpayment of wages is also common in the healthcare sector, with medical centres, dental clinics, allied health providers, and retirement villages also underpaying their staff. A recent Ombudsman’s report found an 85% compliance rate in this sector, following an audit of almost 700 practices. This means 15% of these practices are not complying, commonly not paying the right rates of pay.
Underpayments in the restaurant industry
Recently, The Age reported on claims of wage underpayments by the Vue Group, which includes Vue De Monde, one of Melbourne’s most prestigious restaurants. Six former staff members claim they were regularly required to work 50 or more hours per week but they were only paid for 38 hours. There is an expectation, for salaried staff, that they work “reasonable additional hours” above their ordinary hours of 38 per week. Their salaries are set up to compensate them for this (i.e. with no additional overtime payments) and this is a common and acceptable practice.
But the idea of a salary is that employees are generally paid well above the applicable Award (in the case of the Vue Group this has been stated as being 25% above the award), so that any additional work hours (above 38 hours per week) are compensated by their above Award salary. But this is not the case where salaries are close to the Award and also where there is an expectation that week-in-week-out employees are working 50 or more hours per week. The questions that need to be asked are: do the additional payments (above the Award) cover all the over-time being worked? And, does an expectation to work in excess of 50 hours per week, constitute “reasonable additional hours”?
Sure, there’s always going to be peaks, emergencies, and unexpected problems (such as staff not turning up for their shifts), where it’s reasonable to expect employees to work extra hours. But that’s different to an ongoing expectation that employees will work 50+ hours per week, every week, with no additional compensation, and with salaries only 25% above the award.
The claims of underpayments at the Vue Group follow on from George Colombaris’s restaurant group spending more than $2.6 million to reimburse staff for underpayments.
And an audit by the Fair Work Ombudsman of food precincts in Melbourne (Victoria Street, Richmond), Sydney (Glebe Point Road, Glebe) and Brisbane (Fortitude Valley) found that 72% of businesses were non-compliant, most frequently due to underpayment of wages.
It makes me wonder about all the smaller restaurants I frequent. Is anybody being paid the right amount?
Is your business paying the correct wages?
There are many more examples. The underpayment of wages continues to be a widespread problem. With the Fair Work Ombudsman stepping up its compliance initiatives, organisations that have been getting away with this for many years, could be up for large amounts of back pay, as well as hundreds of thousands of dollars in fines.
In addition, in Victoria, in the lead up to the state election in November 2018, the Trades Hall Council has a campaign to make wage underpayments a criminal offence.
Is your business paying the correct rates of pay?
For assistance with getting your employment contracts right, knowing what award applies, knowing how much to pay and when, contact Girardi Human Resources.
John Girardi
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