Between March 2018 and March 2019, the FWO ran an investigation into the underpayments of a sample group of 70 Woolworths salaried managers. It was found the managers were underpaid $1,172,282 ranging from $289 to $85,905 per individual over the one-year time frame.
Since that time, a number of large retailers made the news by also self-reporting underpayments of some award-covered, salaried staff.
Moving forward to 18 June 2021, and despite back-payments to the 70 salaried managers, the FWO has commenced legal action against Woolworths alleging that it failed to ensure that the employees’ annualised salary arrangements were sufficient to compensate them when compared to actual hours worked. The FWO is claiming that $713,395 remains payable for outstanding underpayments to these employees.
Such a figure could dramatically increase if further underpayments are discovered amongst the 19,000 full-time and part-time salaried managers employed between June 2015 and September 2019.
What is self-reporting?
There is no positive obligation imposed on employers to self-report underpayments. However, the FWO recommends that broader and/or systematic non-compliance with workplace laws be reported as soon as possible.
The FWO’s Compliance and Enforcement Policy (Policy) states that isolated underpayment errors do not need to be reported if they occur over a short period of time, provided:
- employees are notified of the underpayment;
- employees are back paid in full as soon as practicable; and
- changes are implemented to ensure the error does not happen again.
Where self-reporting does occur, the Policy states that the report should identify:
- details of the non-compliance;
- what led to or contributed to the non-compliance;
- the action taken to assess and rectify the non-compliance; and
- in circumstances where there are foreseeable tax and superannuation implications, confirmation of notification to the Australian Tax Office (ATO).
Where a company has self-reported non-compliance with workplace laws, the FWO will take a practical and proportionate approach, which may result in lesser penalties such as compliance notices.
However, the action commenced by the FWO makes it clear that even if companies do self-report underpayments and take significant rectification action, it will not necessarily protect the company from further action.
What are annualised salary arrangements?
Annualised salaries enable employers to pay an employee’s wages averaged over a 12-month period.
Commonly referred to as an ‘all-inclusive’ annual rate of pay, an annualised salary can compensate employees for Award entitlements inclusive of:
- minimum weekly wages;
- penalties;
- overtime;
- allowances; and
- annual leave loading.
They are attractive to both employers and employees alike, alleviating payroll burdens and award entitlement inflexibilities, and increasing ease in administrative processes. For an employee, they offer certainty of a regular payment that can be used for personal budgeting and planning purposes.
As the recent high profile underpayment reports have identified, annualised salaries can become problematic where employees are covered by modern awards, there are administrative deficiencies, and/or employers do not adequately evaluate, or re-evaluate over time, whether the annual salary sufficiently compensates employees for the actual time worked by them.
In addition, employers often do not obtain and retain the same records with regards to overtime hours, loadings, penalty rates and allowances that would have been applicable to their salaried staff under the applicable award than that retained for wages employees. This, therefore, means that employers are underpaying their staff without knowing and are therefore non-compliant with workplace laws.
This failure to keep records places employers in the precarious and unenviable position of trying to disprove an allegation of underpayments where they have not complied with their record-keeping obligations and therefore cannot produce that evidence.
Takeaway
The underpayment of workers has been under an increased level of scrutiny with major employers in a number of different industries publicly admitting to breaches of their workplace obligations.
The FWO prosecution of Woolworths highlights two key points:
- that serious consequences face employers if they do not prioritise compliance with workplace laws, and if a deficiency is discovered, self-reporting may not provide any respite from prosecution; and
- the importance of undertaking regular reviews of annualised salaries and the work practices of an employer’s business to ensure ongoing compliance is met.
If you would like to know more about annualised salary obligations, please contact our Employment and Workplace Relations team on (08) 9321 0522.
