New modelling by big four firm PwC has estimated that as much as 13 per cent of the total Australian workforce could be affected by underpayments each year, totalling $1.35 billion in underpaid wages.
Using Fair Work Ombudsman data, PwC chief economist Jeremy Thorpe found that the construction sector is at most risk of underpayment of wages at $320 million each year, followed by the healthcare and social assistance sector at $220 million.
The accommodation and food services sector is estimated to underpay $190 million each year, with retail accounting for $180 million.
These high-risk industries are estimated to see more than one in five workers affected by underpayments.
‘The perfect storm’
The PwC report believes there is a combination of factors that have contributed to the rampant underpayments across the country.
“The vast majority of employers set out to do the right thing by their workers, but the chances of inadvertently making a mistake are extremely high and, as we are witnessing, small mistakes made across large workforces over several years add up to very large numbers,” said PwC payroll consulting practice leader Rohan Geddes.
“This is due to three intersecting issues: the underinvestment in payroll systems and processes, the complexity of the industrial relations system and the declining presence of unions as a source of oversight within the workplace.”
A simpler system
There are currently 122 modern awards, but each award has multiple clauses addressing minimum rates of pay and other safety net entitlements which differ from job to job, skill level by skill level and industry by industry.
Safety net entitlements such as overtime, penalty and shift rates are interdependent and may differ within a single award depending upon employment status and work type.
“Some common industry awards contain over 10 separate rules that affect overtime accrual. Penalty rates, annualised salary provisions, notification requirements for change of roster rules all vary across awards, industries and sectors, creating a broad runway for errors to be made by employers,” the report said.
Mr Geddes believes a simpler system would be more transparent for workers and employers, and help reduce inadvertent underpayments.
“Complexity is a hallmark of the system and a significant contributor to the underpayments issue, but it is no excuse and employers must keep track of and correctly apply all the rules,” Mr Geddes said.
“Industrial relations reform is always challenging, but this is an area where government, business, unions and workers should see the incentives for simplification.
“Small errors magnified over a long period expose businesses to the risk of substantial financial penalties, reputation[al] damage and remediation work. No doubt there is work to be done to simplify the system and improve oversight, but in the interim, business leaders must ensure their people are paid right by keeping track of and correctly applying all the relevant industrial relations rules and policies.”
Jotham Lian is the news editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.