Two sides to the wage theft story

The government must must accept responsibility for making compliance impossible.

Wage theft is hardly an exciting topic (except for those subject to it) and the term itself is inflammatory but, like it or not, this is the industrial relations issue of 2020.

The federal government is working on a legislative remedy, but this must provide a comprehensive fix, one that is targeted and appropriate (but not showy) in its punishment of offenders. Importantly, before it goes about upping penalties, sending wrongdoers to prison, and shaming them in other ways, the government must first take responsibility for its own failings and correct key design flaws in the system that make compliance impossible.

In a perfect world our narrative on this issue would be around widespread wages errors rather than theft because there are extensive errors routinely made with wages and most of these are not deliberate. Of course, deliberate wage theft does exist and even underpins the profitability of some organisations, but people are underpaid and overpaid mostly by mistake.

Our system is complex and difficult, even the most expert advisers can offer only opinions, and payroll departments are imperfect. Computers calculate and pay wages based on codes that may be entered incorrectly or time sheets that may be wrong.

The first problem with the design of our system means that it can be impossible to accurately determine the correct rate of pay for an employee.

When a business employs a person, assuming no enterprise agreement exists, it must determine which award the person should be paid under and then which classification of pay applies to their particular work.

In some cases this is straightforward and in other cases mind-bogglingly impossible. There are more than 120 awards, but sometimes people do not neatly fit into any award and can possibly fit into two. When this happens the employer can contact our regulator, the Fair Work Ombudsman, to ask for advice as to which award or classification to choose.

Generally, ombudsman staff are helpful; however, they cannot give written, binding advice as to which award or classification applies. Instead, the employer is told to seek legal advice.

Legal advice is simply the opinion of a lawyer, given with all care but no liability, and because every court case results in a winner and a loser it could be said that legal advice is wrong 50 per cent of the time.

An employer can pay the most expensive law firm in the country to tell them which award and classification to choose, but the only way they will ever know for certain is after they have been taken to court for underpayment and the judge has ruled, making a finding.

By then the damage is done, reputations are ruined and punishment is meted out.

So, before it proposes any new law, the government must find a way to ensure that our system regulator can issue, on request, written, binding determinations on which award and classification applies, to all businesses, even large corporations. This may require additional funding or reorganisation of the services provided by the regulator.

The second problem with the design of our system is that overpayments are not taken into consideration when underpayments are made. An overpayment in one area, no matter how large, does not offset an underpayment in another, even when it is to the same worker for the same period.

For example, the base rate of a level 1, pay point 8, registered nurse under the Nurses Award 2010 is $29.72 an hour, which is just shy of $60,000 a year. If an employer wished to pay the nurse an annual salary of, say,$1m a year, they might imagine that all the overtime rates, shift penalties and public holiday rates in the Nurses Award wouldn’t apply.

The employer might imagine that annual $1m salary would automatically cover and offset those additional entitlements, but that assumption would be incorrect.

At the end of the year, if the nurse had worked some overtime and public holidays, the employer could be taken to task, for failing to pay overtime or penalty rates, on top of the $1m.

The employee’s case would succeed because while an overpayment on a base hourly rate is accepted by a worker, it does not offset a failure to pay overtime or penalties. So the $940,000 in overpayment would not offset the, for example, $10,000 in underpayment, and the employer would be required to make good on this.

The employer can get around this issue with an individual agreement in writing, but this must be in a certain format or it is invalid. For whatever reason, employer groups and other advisers have failed to assist business on the use of these types of agreements, so employers routinely are penalised for an underpayment when, overall, they have actually overpaid.

The government must endeavour to correct this situation, which comes about by a legal peculiarity. Any underpayment of an employee must be subtracted from any overpayment made and the net result examined. If the employee is better off overall despite the underpayment, then no prosecution should occur.

The two suggestions made in this column would go a long way towards resolving the wage theft issue. However, in my experience, the more lofty the decision-maker, the more they shrink from the simple solution, preferring instead to take the complex, expensive and ineffective path.