Does it pay to underpay?

Date: July 28, 2014
Author: admin
Posted in: News

 In tough economic times, it is often enticing for employers to seek to cut costs by focussing on their biggest expense: staff wages. However, whilst it may once have been possible to do so economically, the potential for enormous penalties for paying below minimum wage or failing to pay penalties, overtime rates and other Award allowances can be enormous.

In a recent action brought by the Fair Work Ombudsman against Melbourne restaurant La Prochetta, the proprietor of two franchises who had consistently underpaid his employees was hit with more than $334,000 in fines. This was in addition to orders for the repayment of wages, having underpaid his staff and provided food and drinks in lieu of basic entitlements.

Staff who are underpaid can now seek to prosecute the matter privately and have an incentive to do so, with the penalty for each breach of the Fair Work Act now up to $51,000. These can be payable to the employee on application or to a union. Employees are now also entitled under the Act to interest at penalty rates on any unpaid wages. Simply paying minimum wage and failing to meet Award conditions including Sunday rates, rostering of shifts or allowances can lead to the same consequences and have serious economic implications for employers.

Underpayment of wages is not confined simply to small companies. Whereas unions often form an effective safety net protecting employers by advocating for wages and conditions on a regular basis, recent cases have shown that poor management or companies in troubled situations can often let their wage obligations slip. It is therefore particularly important that when buying a company purchaser consider whether the may be “off the book outstanding liabilities” to employees. In at least one case Warlows Legal has found potential liabilities exceeding the value of the purchase price of the business.

Both employers and prospective purchasers and investors should take care to:

  • Consider Award conditions and applications carefully and seek advice as needed;
  • Ensure annual wage checks based on increases to Award entitlements. These usually come into effect from the beginning of each financial year;
  • Audit employee payslips to ensure compliance with the Fair Work Regulations. Additional penalties apply for failing to provide employees with payslips and in the correct form;
  • Ensure that employee records are properly stored and kept and are not altered without recording each change; and
  • Ensure that written records of each employees wage entitlements, any bonuses or other allowances are kept and updated from time to time.

Warlows Legal has experienced in acting for a number of employees successfully in seeking to recover unpaid wages and penalties. Contact us in our Melbourne office located in St Kilda or in our Sydney office located in Bondi Junction for a confidential discussion about our specialised human resources risk advisory service.

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