Understanding an Employer’s Obligations in Pay And Wages
In their preparations for the post-COVID-19 landscape, many employers are reviewing their existing systems with a view on creating efficiencies to reduce operating costs. One of the key areas reviewed by employers is their payroll system. Modern awards are complex industrial instruments which can require a significant investment of time and effort to be correctly understood. An employer greatly benefits from a payroll system which accurately reflects the terms of an award, reducing the need for manual data entry or calculations to be performed.
The recent introduction of annualised wage arrangements into a number of awards in March 2020 has been difficult for some employers. This is because employers struggled to keep track of an employee’s ordinary and overtime hours of work during the height of COVID-19. For some employers during COVID-19, this was further complicated by the fact their employees were working from home. Thus, confirming their employees’ hours of work becomes difficult. Other employees were performing alternate duties that potentially placed them under different classifications within an award, an entirely different award or even excluded them from coverage.
Our friends at IntegrationKings (www.integrationkings.com) have assisted employers during COVID-19 in ensuring business owners’ data systems (such as timesheet software) are properly communicating with their payroll system to ensure their employee’s pay and records are accurate and do not contain discrepancies. Having a smooth connection between time clock and other systems saves time and money.
Employment Law and your Obligations
- An award prescribed minimum terms and conditions of employment (such as pay) applicable to employees covered by the award. Non-compliance with these terms and conditions may constitute a breach of section 45 of the Fair Work Act 2009 (Cth) (the FW Act) which states ‘a person must not contravene a term of modern award’.
- Section 45 of the FW Act is a civil remedy provision. This means a Court or Tribunal may impose pecuniary penalties of up to $13,320.00 for an individual person or $66,000.00 for a company involved in a breach.
- The FW Act expressly recognises that a person ‘involved in’ a contravention of a civil remedy provision is also taken to have contravened the provision. This may create liability for an employer’s managerial staff and (potentially) staff tasked with payroll duties.
Understanding Unintentional Underpayments
An employer’s contravention of an award can often be unintentional. As an example, a day worker under the Manufacturing and Associated Industries and Occupations Award 2020 (the Manufacturing Award) may be entitled to overtime pay if they work outside the hours of 6:00am to 6:00pm. A payroll system (which has not been correctly configured) may not correctly record the employee’s work performed outside these hours as overtime if the employee works less than 38 hours for the week. This creates an unintentional (but very real) risk of underpayment.
- Employers have an obligation to make and keep employee records for seven (7) years under section 535 of the FW Act. Relevantly, an employer’s obligation under section 535 of the FW Act is also a civil remedy provision.
- Many employers now store such records electronically on a cloud-based system, capable of being reproduced in hard-copy if necessary.
- It is therefore important to ensure that any migration of data from an employer’s systems or an upgrade and/or transfer of systems does not result in losses of employee records to avoid a breach of the FW Act. This is particularly the case where an employer decides to change its payroll system. If poorly implemented, data can be lost or corrupted.
How to Mitigate risk – 3 Tips for Employers and Business Owners
Tip 1 – Review payroll system
An employer should review its payroll system to ensure it adequately captures the most recent version of the award which applies to its employees. It should also review its payroll system to ensure the hours of work of its employees (including start and finish times) are being accurately captured. If there are other software programs that feed information into the payroll system such as timesheet software or vehicle tracking software (to record driving time), a review should be undertaken to ensure the systems are accurately communicating with each other.
Tip 2 – Ensure payroll system reflects rules of awards
As illustrated by our earlier example of the Manufacturing Award, payroll systems may not necessarily fully reflect the rules within awards which creates risks of unintended underpayments. This is often caused by inaccurate rules or an employer’s misunderstanding of the terms of an award being programmed into the payroll system.
In order to ensure a payroll system reflects the rules prescribed by an award, we suggest employers undertake a manual audit of their employees’ pay. Of course, we recommend speaking to NB Lawyers – Lawyers for Employers first about the possibility of allowing us to undertake an audit given the findings of the audit may be legally privileged (and therefore exempt from disclosure in legal proceedings).
Tip 3 – Compare HR system with payroll system
Due to COVID-19, an employee may be performing duties of a different classification under an award with different pay rates and allowances. An employee holding a position made redundant during COVID-19 who is subsequently redeployed into another position may also have different pay rates under the award. Other employees may have agreed to a variation to their terms and conditions of employment or work alternate hours of work as part of a Jobkeeper direction.
Whilst all of these changes may be documented within an employer’s HR system, they may not necessarily be reflected within an employer’s payroll system. Having two separate systems which are not integrated creates risks of underpayment (or even overpayment) for employers. Both issues may cost an employer significant time and effort to manage and rectify.
We therefore suggest that employers ensure that any changes made during COVID-19 from a HR perspective are accurately reflected in their payroll system.
How To Put The Correct Systems And Processes In Place Within Your Business?
IntegrationKings can assist an employer in correcting any issues between systems or create efficiencies by integrating separate systems together. An integrated system will save an employer time whilst also reducing the risks of underpayment (or overpayment) issues.
For more information on the work of IntegrationKings, we invite you to watch the following videos:
If you are an employer and eager to find out the correct rates of pay under an award or enterprise agreement which applies to your employees and avoid hassles, NB Lawyers – Lawyers for Employers offers an obligation free consultation for possible and practical solutions. +61 (07) 3876 5111 or email firstname.lastname@example.org to discuss your uncertainty and receive advice today.
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About the Authors
Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law at NB Lawyers – Lawyers for Employers who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability. With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers.
Robert King is a Cloud Integrations Consultant for IntegrationKings with a background in Accounting. His experience in both the Cloud Computing and Accounting fields allows him to effectively match a customers’ needs with products and applications that will enhance all aspects of their business.
Dan Chen is a lawyer at NB Lawyers – Lawyers for Employers, and specialises in employment law. Dan is passionate about assisting business owners, small and large understand their obligations under Australia’s complex workplace relations system