Legal Update – NFP organisation to pay back $13.6 million to underpaid employees

The Office of the Fair Work Ombudsman (FWO) has undertaken audits across the country, in the last few years, with the aim of ensuring that employers understand and comply with their obligations under the Fair Work Act 2009. Many people are aware of the media reports about high profile chefs  and large retailers  being found to owe millions of dollars in back pay to their employees. But, the FWO has not been entirely focussed on the for profit sector. Their ongoing audit regime has uncovered not for profit organisations that have failed to pay their employees properly, failed to pay superannuation and failed to provide payslips and maintain employment records.

The Fair Work Act 2009 sets out the requirements for employers and the FWO has been clear that they will not accept the excuse from employers that they are not familiar with the terms of the Act or any modern awards that may apply to a workplace.

In this alert, we shine a spotlight on a recent case reported by the FWO to help NFP employers understand what the FWO is auditing for and what you need to do to be compliant with your obligations.

NFP disability services provider to back pay $13.6m

The FWO published information on their website about a Western Australian NFP disability services provider required to back-pay employees a total of $13.6 million after discovering that they had incorrectly calculated employee entitlements using a customised wage assessment tool.

The NFP organisation, a registered charity and Australian Disability Enterprise, has entered into a Court-Enforceable Undertaking (CEU) with the FWO after self-disclosing that it underpaid 1,695 current and former employees, in a diverse range of roles including manufacturing, property maintenance, landscaping and product packaging.

The affected workers were all people with a disability and were covered by a pay structure set out in the Supported Employment Services Award 2010, that allows employees to receive a rate of pay based on their capacity to perform the work. The significant underpayments occurred between December 2011 and December 2017 and were identified after the company discovered that changes it made, to broaden the application of a tool used to determine its employees’ rate of pay, contravened the terms of the Award.

An underpayment of $13,469 943.71 for 1,694 current and former employees had been calculated for the period 12 December 2011 to 12 December 2017. There were also related payments for interest and underpaid superannuation that were not quantified in the CEU.

The FWO determined, and the NFP organisation admitted, that the NFP organisation contravened section 50 of the Fair Work Act, relating to the contravention of an enterprise agreement by:

  1. Failing to meet the base rates of pay in the underpinning Modern Award as required by section 206 of the FW Act;
  2. Failing to pay some employees for all of their hours of work as required by clause 7 of the workplace’s 2014 Agreement; and
  3. Failing to make the minimum superannuation contributions required by clause 19.3 of the 2014 Agreement.

The NFP organisation has already back paid $12.7 million to 1313 workers, which includes interest and superannuation. The remaining $907,830 was required to be back paid to 382 employees within 90 days of the CEU being executed.

The FWO said that a CEU was appropriate, rather than commencing prosecution, because the NFP organisation had demonstrated a commitment to back-paying workers and setting up new measures to support their staff.

As part of the CEU, the NFP organisation undertook to fund three external audits over the next three years and establish a process for workers or their representatives to dispute their rate of pay.

The FWO stated in their media release:

This matter serves as a warning to all organisations that if you don’t prioritise workplace compliance, you risk underpaying staff on a large scale and face a massive back-payment bill. Any employers with questions about their lawful workplace obligations should contact us.”

Under the CEU, the NFP organisation must set up a dedicated hotline for its employees and hire a specialist to audit their compliance with Commonwealth workplace laws. The NFP organisation must also liaise with relevant government bodies to ensure that the back payments do not impact adversely on social security payments and they are required to display public, workplace and online notices detailing their breaches and apologising to their employees. The NFP organisation must also engage workplace relations training for payroll and human resources staff.

In addition to the steps the NFP organisation is required to take to rectify the underpayment of wages, they will also make a contrition payment, providing a total of $20,000 to two other WA-based disability NFP organisations. A copy of the link to the CEU is attached here: https://www.fairwork.gov.au/ArticleDocuments/1505/activ-foundation-enforceable-undertaking.pdf.aspx

This case serves as a reminder of the importance of seeking professional advice before implementing changes to systems that could affect wages and other entitlements of employees. It is also important to note that commercial providers of accounting or wage software packages, will not be held responsible if errors arise from using their packages, particularly if you amend the functions of the package. Purchasers must exercise due diligence to ensure that services meet the specific requirements of their organisations.

There is significant value in getting pre-emptive advice from a workplace relations lawyer and accountants conversant with your payroll obligations, to ensure that your NFP organisation remains compliant with its employment obligations.

If are unsure of your obligations as an employer or with the terms of the modern award that applies to your workplace, call NFP Lawyers at (07) 3160 0010 or email reception@nfplawyers.com.au 


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The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.