Amid criminal prosecutions, million-dollar fines and high-profile court cases, employee underpayments are firmly in the spotlight. Organisations now have to ensure their payroll operations stand up to scrutiny – or face the consequences.

In November 2022, a Melbourne restaurant became the first Australian employer to face criminal prosecution for wage theft. The Wage Inspectorate Victoria filed 94 charges against the business and its officer, who are alleged to have withheld more than $7000 in employee entitlements – including wages, penalty rates and superannuation – from four young workers.  

“Victorians can be confident the Wage Inspectorate is doggedly investigating wage theft reports and intends to bring further appropriate matters before the court,” said Robert Hortle, Commissioner of Wage Inspectorate Victoria.

The landmark case is ongoing and preludes conversations about a nationwide criminalisation of wage theft. Queensland became the first state to introduce criminal sanctions for wage theft, in September 2020; and Victoria criminalised deliberate employee underpayments or the withholding of entitlements in July 2021. Employers in both states now face up to 10 years in jail – as well as million-dollar fines.  

While wage theft can only be prosecuted if there’s evidence of deliberate, criminal activity, there is a growing scrutiny on employee underpayments and overly long working hours nationally.  

Many speculated that federal wage theft criminalisation was to be part of the Albanese government’s Secure Jobs, Better Pay Bill. However, as this will include criminal sanctions, unlike any elements in the Secure Jobs Bill, this is an issue that requires its own bill, resources and time.

A Unions NSW survey of 7000 foreign language job advertisements found that most offered illegal pay rates, prompting calls for more to be done at the federal level. And in a high-profile court case, independent MP Monique Ryan was sued by staffer Sally Rugg in January over alleged breaches of workplace law, including long hours. 

Amid this growing awareness of underpayments, it falls on HR leaders and payroll officers to get their house in order. Although the intentional withholding of entitlements may be rare, everyday payroll issues can mean employees are left short-changed – leaving employers to, eventually, foot the bill. 

Overtime contributes to underpayment

David Catanese, Partner at employment law firm Hall & Wilcox, says the concept of wage theft has flourished since 2020. 

“It’s something the Victorian government, and Labor more broadly, has taken on as an issue and been proactive about,” he says.  “New legislation has been created, giving pathways for employees and regulatory bodies to take legal action against employers who fail to meet their obligations in serious cases.” 

Catanese says it’s unclear whether wage theft is on the rise, or merely its scrutiny. However, workers in industries such as hospitality, agriculture and manufacturing can be particularly vulnerable.  

“Traditionally, these sectors can be less subject to regulation and scrutiny, with employees from non-English-speaking backgrounds and immigrant populations more common. In instances where a power disparity between employer and employee exists, the latter may be reluctant to take action or seek assistance from regulatory bodies because of cultural reasons.” 

Underpayment issues also occur in knowledge work settings. Much of this arises from flexible working and ambiguity on contracted hours. 

“The general position is that employees can work a 38-hour workweek plus reasonable additional hours,” says Catanese.  “It’s the ‘additional hours’ that’s the grey area. The lines between what constitutes work and what doesn’t have been blurred.

“Remote and hybrid working have delineated people’s workdays even further, so that employees are contactable at all times thanks to their devices.”

Not only has this created a knock-on effect for employee wellbeing and health and safety, but it has also intensified the debate over what can be fairly classified as unpaid overtime – and when an employee should be remunerated for working past their finishing time. 

“An example may be an employee working an ordinary business day with a flexible working arrangement and they answer emails between 8am and 8pm,” says Catanese.

“If it’s deemed that the person has worked a 12-hour day, then overtime entitlement and significant penalties for the employer can accrue – sometimes without their knowledge.”  

This can also lead to hefty fines for employers. In October 2022, a meat wholesaler in Sydney was fined more than $93,000 after the Federal Court found it had unreasonably required an employee to work 50 hours per week, plus ‘reasonable’ additional hours.

Exacerbating matters is that it’s not just unpaid wages that can introduce risk for businesses. Employers may also be liable for employee entitlements like superannuation. 

“These types of liabilities can accumulate very quickly,” says Catanese.  “Take that example, multiply it by dozens of employees over several months and a significant underpayment can rapidly accrue into the hundreds of thousands of dollars.”  

In fact, the directors of your business are personally liable for unpaid super dating back to 1993. This type of underpayment may be an oversight, meaning it wouldn’t fall in the definition of criminal wage theft, but it leaves employees out of pocket – and businesses non-compliant with employment laws. 

“There’s now a greater awareness of employee entitlements and wage theft,” he says. “And an increasing dislocation in respect to working hours and underpayments arising from flexible working.”   

“Everyone who does payroll based on awards should know how they work. But no organisation teaches their staff how to do it.” – Tracy Angwin, CEO, Australian Payroll Association

Navigating a complex payroll system

The Albanese government estimates that Australian workers lose out on more than $1 billion annually as a result of wage theft. But a national roll-out criminalising the practice was left out of December’s Secure Jobs Bill.

A reason why could be the complexities and nuances of the Kafkaesque Australian payroll system and a lack of clear, equitable policies around the country. For example, while annual and personal leave are federally governed, each state and territory has its own legislation relating to calculating and paying long-service leave, including whether this amount should be paid in full upon employee termination.

 “It leaves you with eight different sets of long service leave rules,” says Tracy Angwin, CEO of the Australian Payroll Association. 

There are 122 modern awards that set and regulate minimum terms and conditions of employment for certain employees in Australia. 

“The problem is all awards are so different,” says Angwin. “The normal hours for private dentists are different to public ones, meaning overtime is paid differently. A hospitality or healthcare award may mean working a certain number of Sundays or public holidays results in the employee being entitled to an extra week of leave. 

“Then, that leave entitlement will depend on whether they’re a shift worker, but that definition could be different depending on the individual award.” 

And the complexities don’t stop there. 

“An employee with an award stating they’re paid 150 per cent for working on a Saturday may be paid the payroll code for time-and-a-half,” says Angwin.  “The same amount will appear on the payslip, but the problem will emerge later: they are entitled to superannuation, but the payroll code for overtime doesn’t pay superannuation. This means the employee is being underpaid.” 

There has also been a chronic lack of investment in payroll training by employers, says Angwin. Knowledge gaps have been compounded by faltering processes and a lack of hard data that mean errors germinate.  

“Everyone who does payroll based on awards should know how they work. But organisations rarely teach their staff how to do it. And few employers invest in training payroll staff. An organisation I spoke to had 65 supervisors calculating awards, with no training. Meaning they had potentially 65 different ways of calculating someone’s correct wages.” 

This means mistakes are made and employees are underpaid. Over time, this debt can add up to hundreds of millions of dollars. 

“The first major underpayment [case] involved Lush for around $4 million over eight years, which felt like a huge sum,” says Angwin. “Now, it’s Woolworths for nearly $600 million.” 

Added to this pre-existing payroll malaise has been the advent of hybrid and remote working patterns, further muddying the waters of employee hours. 

“If an organisation’s payroll operation wasn’t robust before the pandemic, then it will have an even harder time coping now.” Angwin says a payroll compliance audit is critical for a business if they want to make sure employees are paid correctly – and that they won’t face the wrath of regulators. 

“Businesses are good at doing their tax audits. Less so at doing a payroll compliance audit. Until one is done, it’s unlikely they’ll receive much sympathy from the likes of the Fair Work Ombudsman – or anyone else, for that matter.” 

Identifying errors that could lead to underpayment

It’s unclear whether a national wage theft bill will re-emerge this year. Giuseppe Carabetta, Associate Professor of Employment Law at University of Technology Sydney, says the focus should instead be on uncovering clerical errors that result in employees not receiving money owed for the time and value they bring to an organisation. 

“Oversights can occur, and employer groups argue it’s due to the complexity of our laws,” says Carabetta. “But that’s an overgeneralisation. There’s no real excuse for large, well-resourced organisations with HR departments, outside advisers and such. If you can afford a tax lawyer, you can afford an employment lawyer.” 

In the changed world of work, leaders also need to do more to protect employees from routinely going beyond their contracted hours and ending up underpaid.

“Employers should be actively managing and restricting the hours of work undertaken by employees,” says Catanese. “This can be done by directing them only to work between certain hours or, in some circumstances, restricting employee access to systems outside of business hours. And there should be an active and ongoing dialogue regarding their working hours.” 

Angwin says more leaders are beginning to realise the importance of thorough payroll practices. 

“More employers are taking the opportunity to train their people and support them in getting payroll compliance audits done,” she says.

“Unless organisations begin to be proactive about this, good luck if a regulator decides to audit you. It’ll be unpleasant.” 

Need help brushing up on HR laws and compliance? AHRI’s short course will give you an understanding of the key elements of legislation, regulation and practices HR needs to be across. You can also download a printable version of the checklist here.

This article first appeared in the April 2023 edition of HRM Magazine.