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Employee underpayment is on watch list: here’s how accountants can help

What do 7-Eleven, Domino’s and Caltex all have in common? They’ve all recently been caught up in the investigation into employee underpayment by the Fair Work Ombudsman.

Insights Andrew Birch 21 April 2017
— 3 minute read

Open a newspaper or click on a news site and you’ll see the issue is a hot topic among the business community – at the small and big ends of town.


Just this month MAdE Establishment, the restaurant group of which MasterChef judge George Calombaris is a director, was forced to pay $2.6 million after underpaying 162 employees. Around the same time, a Fair Work Ombudsman investigation found 40 per cent of United Petroleum stores were potentially exploiting workers.

It is an issue remaining firmly on the regulator’s agenda. Earlier this year, the government introduced The Fair Work Amendment (Protecting Vulnerable Workers) Bill, which aims to increase penalties 10-fold for “serious contraventions” against workers and target poor bookkeeping by doubling penalties.

For SMEs, remaining compliant is critical. If you are a business owner and you do not take these requirements seriously, the impact on your business can range from financial impairment to widespread reputational damage among consumers and employees.

Employers don’t want to exploit their staff and the majority actively work with the regulator to address any problems. In fact, last financial year the Fair Work Ombudsman noted nine in every 10 workplace disputes it came across were solved without using any formal compliance action.

Another challenge for SMEs is the effect of late payments from customers, which can impact bookkeeping and staff payments. Research from MYOB found 54 per cent of SMEs had waited more than six months to be paid by a customer, with more than seven in ten writing off money owed to them.

But intent is not the only cause of the cycle of underpayment.

Too often businesses are accidentally breaking the law through sloppy financial and accounting processes. They need to be accountable – and take action to ensure their processes are correct.

Workplace laws are complex, and are just one of a handful of regulatory obligations facing SMEs. As professional advisers, it is important accountants use their expertise to help clients navigate this minefield.

Know your role

The Fair Work Ombudsman has been making the most of the accessorial liability provisions as part of The Fair Work Act for some time, which extends responsibility to others ‘involved in’ contravening the act. This can include key personnel such as company directors, accountants and HR advisers. Recent commentary from the Ombudsman suggests that the use of these provisions is set to continue in the near term.

In practice it means that, if yours is the accounting firm for a business which breaches The Fair Work Act, you could be personally liable. 

We often see this happen where accountants overreach, trying to help their clients navigate the complexity of employment law. SMEs are likely to go to their closest service provider in the first instance when they are unsure on an employment matter, and this trusted advisor is often their accountant. Where they get into trouble, is when an accountant provides advice outside their scope and it breaches the law. While there is no intention to do harm, this accountant can be personally liable.

For this reason, we believe it is critical accountants have large referral networks to draw from if they find themselves in this predicament. It means they can defer to an expert on employment law when questions from clients extend beyond their area of expertise.

Ensure bookkeeping is up to scratch

In a recent presentation, Fair Work Ombudsman Natalie James said “proper record keeping is the ‘bedrock of compliance’”. This is particularly true in businesses where staff have inconsistencies among their hours worked and their rates of pay. Without up-to-date books, there is no record of what hours have been worked and what the business owes.

For accountants, it is important appropriate bookkeeping processes are being followed in their clients’ businesses.

Educate all managerial staff

One of the most prudent courses of action an accountant can impress upon their clients, is to ensure all managerial level staff understand the basics of labour laws – after all, prevention is better than a cure.

It is no longer enough for payroll managers and company directors to understand what the business requirements are in relation to employee payments. Instead, it’s critical everyone in a management or supervisor position knows how compliance works, and when it needs to be escalated to someone with professional expertise. While it requires a big investment, especially for SMEs, the payoff is well worth it to avoid potential compliance issues.

When in doubt…

If a client situation becomes complicated, accountants would be well advised to work with The Fair Work Ombudsman to ensure all SME activity complies with the act. Your role as a service provider is key – to help the Ombudsman reach those businesses that may not wish to directly approach the regulator. Its role in kind is to help support and advise an SME on the next steps if their employee payments contravene the rules.

Honesty and transparency go a long way in this situation. The regulator has been working with the community to address at-risk conduct before it escalates. This approach not only ensures businesses are able to get their systems in check and avoid financial and reputation damage, but that employees are fairly compensated for the work they do in driving the success of Australia’s SMEs.

Andrew Birch, general manager, industry solutions, MYOB

Employee underpayment is on watch list: here’s how accountants can help
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Andrew Birch

Andrew Birch

Andrew Birch joined MYOB in 2009 as General Manager, Enterprise Division. He became General Manager, Websites Division in 2010 and more recently was appointed General Manager, Industry Solutions.

Prior to joining MYOB, Andrew held a number of senior management positions within the technology, telecommunications and software sectors, particularly in the leadership and growth of significant technology companies, including Honeywell Pacific and Vodafone Australia, as well as mid size technology businesses within Australia and New Zealand.

Andrew holds a Bachelor of Engineering from the Swinburne Institute of Technology and a Master of Business Administration from RMIT University.