Confessions of a wage underpayment

It is hard to feel sorry for the massive organisations getting caught up in the recent underpayment scandal. Westpac, Qantas, Woolworths, CBA, even the ABC, all rushing to confess to the sin of wage underpayment (and in many cases overpayments as well) to the priestly organisation of the Fair Work Ombudsman to minimise potential penalties. Often, in addition to paying the underpayments and interest to the employees, these massive organisations are also making “contrition payments” for their transgressions… It is truly starting to sound religious!

But how did we get here?

This all started with a series of much smaller organisations, who it appears intentionally underpaying their staff and got caught. Governments and regulators reacted to this “wage theft” with some pretty big sticks. For a recent example, there are now Victorian laws with fines of around $1 million for businesses and up to 10 years' jail for employers who intentionally underpay wages. There are even now wage inspectors with all the powers that police have.

This has meant that many large organisations have done a review of their payroll to make sure they will not be caught… and many of these organisations found that the way they have set up their in-house payroll has meant they have not been paying what they are legally required to.

So, before the Fair Work Ombudsman can catch them, or they can fall foul of any of these new laws, they are rushing to admit these underpayments and sort them out.

For example, the rules regarding long service leave are different in every state and territory and many have changed in the last few years. Put simply, they are a nightmare where you have an organisation operating across various States. And Westpac has recently acknowledged that:

“For long service leave entitlements, different rules apply to different employees based on their employment history and work arrangements. Regrettably, our system didn’t correctly capture the right methodology every time.”

Of course, that is PR speak for we underpaid 8,000 employees around $8 million because we did not calculate long service leave correctly. They acknowledged that they had also overpaid some employees as well but were graciously not going to recover these amounts.

For the ABC is was “flat rate” casuals not received overtime, penalties and some allowances and some casuals been paid less than the minimum hourly rate. The CBA just called their $15 million of underpayment an “error in their system” but this included not paying all of their BankWest employees for an entire day. Qantas admitted that the underpayment of $500,000 and overpayments of $2 million was “an error, plain and simple”. The Super Retail Group did not pay managers $32 million in overtime.

But all these numbers are mere change compared to Woolworths. Woolworth last year admitted that annual salaries paid to employees over multiple years were lower than the minimum rates of pay and penalties payable for their work under the relevant Award. This meant underpayments of over $300 million and, when all the costs to fix the problem were included, the hit to the accounts was over $400 million. There were investors at the AGM calling for resignations as a result.

While admitting their guilt, many of these organisations have either said themselves, or sent their industries bodies out to say on their behalf, that the Australian award system is now so difficult, that even some of the best resourced payroll divisions of some of Australia’s largest organisations are making unintentional errors, and in many cases incorrectly overpaying their employees.

Following the Woolworths admission, the Business Council of Australia stated:

"We do need to make sure we aren't creating a system that is so complex - 122 awards, multiple agreements, multiple clauses - that is vulnerable to inadvertent payroll mistakes."

And about now the smile on my face that happened when I realised the biggest organisations got their payroll wrong becomes a frown, because I wonder if I have got it right. These large and well-resourced organisations got it wrong. And there is not just one mistake across all these organisations. Each has messed up in their own way. Each found they were “vulnerable to inadvertent payroll mistakes”.

So that makes me wonder if I have a mistake or mistakes in my payroll, either underpaying or overpaying…

I wonder if I need to enter the payroll confessional and admit the transgression of unintentional under or overpayment of wages as well?

About Ken Mansell

Ken takes the label “tax nerd” as a badge of honour. He has worked for KPMG and Deloitte, as the tax counsel for ASX and NYSE listed entities, worked on tax policy for the Federal Government, as an advisor to the Assistant Treasurer, and on the secretariat of the Henry Review of Taxation. Ken runs “Tax Rambling” where he tries to share his love of tax with the rest of the world.

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