Near enough isn’t good enough: Don’t be tripped up by employment law compliance

Australia’s Fair Work Ombudsman has a stark message for all business leaders: non-compliance can trip up even the largest, most sophisticated of employers. Despite the regular flow of underpayment headlines, those cases have traditionally focused on small and medium-sized organisations, characterised by wilful non-compliance or exploitation.

Not anymore.

Natalie James, former Fair Work Ombudsman, recently told HR Daily that the past five years has seen a shift towards big-name employers attracting the regulator’s attention. These are interesting cases, she said, because these employers are often not wilfully or recklessly failing to comply with the Fair Work Act and other laws, “but it certainly isn’t deliberate, conscious compliance either”.

While James conceded that the workplace relations system is “very complex”, the message from the FWO is clear: near enough is not good enough. “Compliance at its the most basic in Australian workplace relations law is paying employees correctly,” she told HR Daily.

The risks of non-compliance are just starting to be understood by businesses of all sizes – and the FWO is keen to keep the momentum going. In the 2017-18 Annual Report, Fair Work Inspectors completed more than 4,500 workplace audits and recovered close to $30 million for workers. There was also a 49% increase in penalties handed down by the courts in 2017-18 to $7.2 million, including the highest penalty under the Fair Work Act of $660,020 in a matter involving a migrant worker.

And while this latest message applies specifically to Australian employers, New Zealand employers is not out of the woods. New Zealand’s Ministry of Business, Innovation & Employment estimated in 2016 that payroll underpayments alone could affect more than 700,000 NZ employees and add up to more than $2 billion.

So, what’s going wrong? Two themes have emerged.

First, large employers’ non-compliance is due to what’s referred to as “systems-embedded compliance failures” (SECF). There are two reasons for SECF, with the first being misinterpretation of the law. This might include:

• Incorrectly classifying employees
• Having a system that isn’t equipped with the right triggers for allowances, overtime and penalties
• A lack or complete absence of time-keeping records.

The second key reason – and “the big one”, James said – is annualised salaries. The key here is to remember that even if employees are on annualised salaries, they can also still be on an award or agreement.

James, who is now a Partner at Deloitte, clarified that employees with an annualised salary who also fall under an award or agreement and don’t have a set-off clause in their contract “should be getting at least what they should have got under the agreement or award for every hour they’ve worked” in each salary period – an important fact to keep in mind for salaried employees who regularly work overtime.

James recommends that employers look closely at agreements and awards and check the scope provisions and coverage clause, because if employees fall within those descriptions, they are entitled to the outlined hourly rates, penalty rates and overtime. She said that the recording of hours is critical and added that the annual “true-up process” required by some awards with annualised salary clauses cannot be performed without it.

James also offered a word of warning about complacency in outsourcing arrangements. Employers that use labour hire arrangements cannot outsource their obligations and are essentially responsible for counting the hours of the worker. Tracking hours has become even more critical due to the reverse onus of proof claims.

“If hours of work haven’t been kept, you have to look at other sources of evidence,” James said. “You look to other records and other data to try and work out what hours are actually worked. Make no mistake, you are in a remediation space. The risk has become shared.”

Workplace laws in Australia and New Zealand are notoriously complex, but that’s no excuse for non-compliance – especially when the associated costs are factored in, such as fines, compensation, legal costs and brand damage. A comprehensive learning program can help mitigate the risk of non-compliance by ensuring employees are given access to mandatory training. To find out how much time, money and resources your organisation could potentially save by using ELMO Learning, as well as insights into the potential risk of non-compliance, try our easy-to-use Learning ROI Calculator.

In addition, ELMO Course Library can help to keep your employees up to date on compliance-related training. With regularly updated course content, and new courses being added every month, users can access over 400 courses covering everything from soft skills to industry-specific and compliance-related issues. These courses are created by subject matter experts and instructional designers with industry best practice approaches to eLearning.

Finally, download ELMO’s HR Compliance Checklist today to see how your HR systems, processes and policies shape up.