Streamlining awards will reap real rewards

A complicated system governing pay is contributing to the problem of wage theft.

We used to call them breaches, but these days they go by the much more emotional term wage theft.

Workers who have been paid below award rates of pay have been robbed, so the argument goes, and must be compensated. Employers who have paid below award rates, for whatever reason, are thieves and must be penalised.

The federal government is heading up this quest to outlaw wage theft by punishing employers, including by potentially making wage theft a criminal offence and banning directors.

This is being done even if the ultimate consequence is to hurt many workers by limiting job opportunities and constraining real wage rises

That’s what happens when the minister in charge is a regulator at heart and doesn’t understand economics.

Don’t get me wrong, there are some egregious examples of mistreatment of workers. But so-called wage theft comes in different shapes and sizes, and this needs to be acknowledged in any discussion of the issues.

The sheer complexity of the underlying award and agreement systems is a central part of the problem. And, by and large, the unions have been asleep at the wheel when it comes to detecting and sorting out the problem of wage theft.

If we think about wage theft, there are at least three types. The first is behaviour by employers that is clearly deceitful and unlawful. The treatment of temporary migrant workers employed at 7-Eleven stores is a case in point. Workers were substantially underpaid on an hourly basis, wage and hours records were fabricated, and some workers were asked to return part of their pay in cash to their employers. The threat of being reported to the immigration authorities hung over the heads of many workers.

The second example relates to inadvertent breaches of award conditions, which can easily occur in small businesses, in particular, because they lack the resources to access dedicated industrial relations advice.

While it is true that there are fewer awards than was once the case — there are 120 modern awards where once there were thousands — there is a difference between fewer and simpler.

In fact, many of the awards continue to be difficult to interpret — in relation to casual and shift premiums, overtime rates and allowances, for instance. There is also ambiguity about the exact category of worker that is appropriate.

In these instances, the employer will be unaware that some workers are not being paid the correct rates of pay. And it generally will be remedied only when it is drawn to the employer’s attention. The hope is that the business is sufficiently solvent to pay back the “stolen” wages to the affected workers, past and present

But in case you think it’s just small businesses that fall into this category, the Australian Broadcasting Corporation recently has admitted to underpaying a large number of its casual staff. A sum of $23m has been set aside to remedy this unintentional error.

Mind you, serious questions can be raised about the professionalism of the human resources department of the ABC.

Ironically, plaintiff law firm Maurice Blackburn, whose motto is We Fight for Fair, also has been found to have underpaid some of its casual staff by failing to add in overtime premiums. All up, 400 workers were affected and the firm has allocated $1m to cover the underpayment.

The third category of breach largely involves workers employed under enterprise agreements. Notwithstanding the certification of agreements by the Fair Work Commission, it turns out that, in some instances, agreement-covered workers were worse off than had they been paid according to the award. This was the case in Coles Supermarkets enterprise agreement, for example.

Most of these types of agreements have expired and the workers are covered by the relevant award or by a new agreement that contains at least full award provisions for all workers. But they do illustrate the ambiguity of the wage theft concept; these agreements had the backing of the law.

The recent case of the underpayment of Woolworths’ store managers is another demonstration of the pitfalls of the system as well as the incompetence of the company’s HR department and legal advisers.

These store managers were paid an annualised wage that was meant to take into account shift and overtime rates as well as other allowances. In their letter of engagement, they were misled by being told that they were not covered by an award or agreement. In reality, they were covered by an award; it turned out that their annualised rates of pay were below the all-up award rates of pay. This became apparent only because some of the workers they were supervising were being paid more than the store managers.

Had the company looked into the complaints they received from a small group of store managers with good grace, the outcome may have been slightly different. But the company sought to block the process and deny the veracity of the grievance.

The final compensation bill for the company is substantial — $200m — but the loss of corporate reputation is just as painful.

One wonders whether, if the HR department had spent less time on diversity and inclusiveness training and conducting meaningless employee engagement surveys, the correct pay advice could have been provided to senior managers about the need to adjust the pay of store managers.

In theory, annualised pay is a good way for workers and employers to secure win-win outcomes. Workers can be assured of their periodic earnings while employers can set working arrangements in ways that best suit customer requirements and business needs. The incentives for workers to create the need for overtime and shift work are essentially eliminated.

Potential breaches for under-award payments for workers on annualised wages have traditionally been dealt with in agreement clauses that involve investigation at the request of individual workers or as part of random audits. However, from next year employers will be required to provide detailed spreadsheets on the working patterns of every worker on annualised salaries to demonstrate that they are all better off relative to the award.

The possibility that this costly and intrusive regulatory impost on business won’t go ahead has been blown out of the water by the Woolworths case.

The bottom line is that breaches of our complex system of wage regulation are a mixed bag — some are due to fraudulent and self-serving behaviour by employers while others are essentially unwitting. A one-size-fits-all solution is unlikely to fit the bill.

It also has to be acknowledged that many workers have willingly signed up to work under certain conditions only to find, ex post, that these conditions were less than award conditions. They will doubtless be happy to receive any compensation but we need to be aware that freedom of contract often can be undermined by exces­sive regulated pay and conditions.

As the government continues its assault on wage theft, it also needs to press ahead with attempts to truly simplify awards — something successive arbitral tribunals have failed to do — and streamline the entire agreement-making process.

Without this tandem approach we run the risk of returning to a rigid and centralised wage-fixing system in which employers’ capacity to pay is given little weight. In time, employers’ incentives to start and grow businesses and to take on new workers could be seriously undermined.