Underpaying employees can have serious consequences

11 September 2015

In recent weeks there has been widespread media coverage about employers who are alleged to have been underpaying their employees.  In many cases it has been alleged that employees were being paid less than the award, the basic wages safety net.

Franchise operators Grill’d, United Petroleum and 7-Eleven have all come under the spotlight, including allegations that ‘head office’ was aware of the underpayments.

The Fair Work Ombudsman (FWO) is believed to be investigating 7-Eleven for wage fraud across its stores.  This is allegedly the third such investigation in six years following a raid of 20 stores last September in Melbourne, Sydney and Brisbane which found 60% cent were underpaying staff and doctoring their payroll.

In many cases, employees were found to be getting paid $10 flat with no weekend or penalty rates, regardless of whether they worked during the day or night.

Falsifying payroll records

In addition to underpaying employees, it is alleged some employers were forging payroll records by misstating the actual number of hours an employee has worked on their payslip.

Doing this creates the illusion the employee is being paid the correct rate, but for considerably less than the actual hours worked.

Under the Fair Work Act 2009 (Cth) and accompanying Regulation employers must comply with National Employment Standards (NES) and the relevant Modern Award.

As such employers have an obligation to keep accurate employee records.  If records are not kept or are incorrect, Fair Work Inspectors can give employers a fine, called an infringement notice.

Civil penalties

If an employer’s failure to meet the requirements is serious, wilful or repetitive, the employer can be taken to Court and be liable for significant penalties.

A breach of the NES or awards is a civil penalty, and can attract a penalty of up to $54,000 per breach.  There is also a $10,800 maximum penalty for individual breaches of the NES or awards system.

Although the franchisee is the employer and therefore liable for any breach, if the corporate head office is found to be complicit in all of its franchisees’ offences, there is the potential for a penalty to be imposed for each individual franchisee who is found guilty of breaching the law.

If all of the franchise stores breached the NES and awards, and the head office is found to have been complicit in every breach, the company could face the maximum penalty multiplied by the number of stores which could run into several million dollars!

In addition, the company will also have to make restitution to the employees who were underpaid.

Links and further references

Legislation

Fair Work Act 2009 (Cth) – sections 535, 536, 558, 799

Fair Work Regulations 2009 (Cth) – regulations 3.33 & 4.04

Further information about employment law for employers

If you are an employer and need advice on your payroll recording obligations, or compliance with your other employment law obligations please contact us for an obligation free and confidential discussion.

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

---

Related insights about employment law for employers