Payroll risks

Underpayment consequences prompt payroll review

Many businesses continue to run the risk of significant public relations and financial consequences in an attempt to reduce labour costs. The underpayment of workers has been a burning issue in the Australian business landscape since the 7-Eleven franchise hit the headlines in 2015 for the underpayment of employees by almost two-thirds of all stores across the country.

Systematic underpayment of employees is widespread and repeatedly exposed, often by the media, however, this has not stopped countless Australian companies making the attempt to illegally reduce their labour costs. Some businesses have built business models around paying employees at lower rates than the national minimum or their specific industry award.

Over the past few years there has been a sharpening focus from authorities, as well as steeper penalties being introduced. In early 2019, the report of the Migrant Workers Taskforce called for jail time for employers who engaged in the deliberate underpayment of employees after it was found that up to half of Australia’s 880,000 migrant workers were being underpaid.

Caltex, the Commonwealth Bank of Australia, Woolworths and Dominos are just a few of the many well known Australian companies that have taken a hit for underpaying employees in recent years, however businesses of all size are susceptible to the serious penalties of the Fair Work Ombudsman.

What should you do

Whilst most employers do not intentionally underpay employees, it is your responsibility to ensure that employees are paid within the appropriate requirements. It is recommended that business owners take an active role in ensuring their business is complying with payment regulations and that all workers are paid correctly. If the payroll is operated by a Human Resources (HR) department or other team members, business owners should ask questions and demand evidence to ensure everything being done is above board.

It is important that if any underpayment is identified it is rectified as quickly as possible – a small issue that has existed over a long period of time can quickly turn into a major problem. Businesses that are constantly growing or do not have sophisticated HR need to pay extra attention and it is recommended that they seek professional advice.

With the increased use of online reporting requirements such as Single Touch Payroll, authorities can obtain and match data easier than ever, putting non-complying businesses in the spotlight. If your business is at risk of non-compliance it will likely be identified in a review or audit.

AFS & Associates has the largest audit team in regional Victoria. Our internal audit team can work with you to review your compliance and risk management obligations, providing independent credibility to your financial statements. If you think you may be at risk or would like to discuss your payroll obligations please give us a call on 03 5443 0344.

Katie Dempster, Audit Manager