It is well known that Australia has one of the most complex industrial relations systems in the world, with over 120 modern awards.
Many have argued that the complexity of the award system has been one of the primary drivers of recent wage underpayment disclosures, causing regulators to consider how technology can be used to simplify compliance in award-based industries.
Via the 2021 Federal Budget, the Federal Government has thrown its support towards wage compliance, announcing spending of $10 million over four years for a regulatory technology solution that assists employers to interpret and comply with modern awards.
One of the Government’s industrial relations working groups recently considered a similar proposal which required the regulator to certify payroll systems and provide a ‘safe-harbour’ solution for employers.
Specifically, the proposal suggested that default payroll configurations for each modern award should be certified by the Fair Work Ombudsman (FWO), to ensure that wage and superannuation entitlements are correctly calculated at a system level.
With the recently announced funding, we would expect this proposal to build a ‘safe-harbour’ solution to be expedited over the coming year.
While this proposal would deliver a simplified compliance mechanism for regulators and employers, to date it has been opposed by union groups.
These groups have argued that it would not protect employees from other forms of wage underpayment that occur outside the payroll system - such as ‘off-the-clock’ violations, or from non-compliance with other industrial instruments such as enterprise agreements.
The announced investment is a step in the right direction, but it can’t be seen as a ‘silver bullet’ solution.
Like many existing solutions, it will be limited by the quality of data that is maintained by employers within the payroll function.
Payroll data deficiencies
Employers and regulators alike need to be aware that monitoring compliance with modern awards and enterprise agreements involves consideration of governance procedures across payroll and human resources (HR), with the interaction between time and attendance (T&A) and payroll systems being a key area of risk.
HR’s understanding of employees’ job design presents ongoing compliance risks, particularly during the onboarding process and when manual processes are involved to ensure that the correct award classification is applied as employees’ duties change over time.
With the changing ways of work that have developed in response to COVID-19, it is now especially important for organisations to understand how changing duties, hours and patterns of work may impact employees’ entitlements under modern awards and pre-existing agreements.
When payroll problems are identified the immediate thought is that there is a deficiency in the payroll system, however in many cases it is the workforce management system that has not been configured or maintained correctly to cater for the complex requirements of the industrial relations regime in which we operate.
Organisations are commonly finding that their T&A data is not mapping or reconciling to their payroll systems correctly, resulting in employees inadvertently missing out on their entitlements under the award.
These ‘off-the-clock’ violations commonly result in the incorrect calculation of entitlements, including overtime and penalty rates.
Examples of impacted penalty rate calculations could include those associated with break violations and cumulative hours worked within a week, fortnight or month.
Implementing governance processes
A ‘safe-harbour’ solution in theory should correct many of these misinterpretations.
However, through our investigations we have consistently identified missing governance processes within the payroll function that are leading to these issues, as opposed to limitations with the payroll technology.
Ensuring that there is good governance policy and procedures and robust technology around time capture (including employee education), absence management, employee onboarding and employee progressions are just as important as ensuring the correct interpretation of awards within the payroll system.
Employers that have not commenced a review of their payroll, time and attendance and workforce management systems are at significant risk of being caught off-guard.
The recent shift to proactive enforcement measures from the FWO, additional funding from the Federal Government, inter-agency cooperation with the Australian Taxation Office (ATO) and increasing use of director penalties, mean that it is more important than ever for organisations to get their wages right.
The recent high-profile underpayment disclosures within the retail and hospitality industries have meant that employers within these industries have been put under the spotlight by regulators.
However, there are other industries with complex awards and workforce profiles (such as mining and healthcare) that may also be at risk of non-compliance and the focus of regulators in 2021.
Read the full report Navigating wage compliance complexity (PDF 312KB) which looks at:
- Why is it so hard for many organisations to have full confidence they are getting it right?
- How does your workforce profile impact wage non-compliance risk?
- Are your systems fit for applicable industrial instruments?