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

The Office of the Fair Work Ombudsman (FWO) has undertakenaudits across the country, in the last few years, with the aim of ensuring thatemployers understand and comply with their obligations under the Fair WorkAct 2009. Many people are aware of the media reports about highprofile chefs  and largeretailers  being found to owemillions of dollars in back pay to their employees. But, the FWO has not beenentirely focussed on the for profit sector. Their ongoing audit regime hasuncovered not for profit organisations that have failed to pay their employees properly,failed to pay superannuation and failed to provide payslips and maintainemployment 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 casereported by the FWO to help NFP employers understand what the FWO is auditingfor 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 WesternAustralian NFP disability services provider required to back-pay employees atotal of $13.6 million after discovering that they had incorrectly calculatedemployee entitlements using a customised wage assessment tool.

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

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

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

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

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

The NFP organisation has already back paid $12.7 million to1313 workers, which includes interest and superannuation. The remaining$907,830 was required to be back paid to 382 employees within 90 days of the CEUbeing executed.

The FWO said that a CEU was appropriate, rather thancommencing prosecution, because the NFP organisation had demonstrated acommitment to back-paying workers and setting up new measures to support theirstaff.

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

The FWO stated in their media release:

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

Under the CEU, the NFP organisation must set up a dedicatedhotline for its employees and hire a specialist to audit their compliance withCommonwealth workplace laws. The NFP organisation must also liaise withrelevant government bodies to ensure that the back payments do not impactadversely on social security payments and they are required to display public,workplace and online notices detailing their breaches and apologising to theiremployees. The NFP organisation must also engage workplace relations trainingfor payroll and human resources staff.

In addition to the steps the NFP organisation is required totake to rectify the underpayment of wages, they will also make a contritionpayment, 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 seekingprofessional advice before implementing changes to systems that could affectwages and other entitlements of employees. It is also important to note thatcommercial providers of accounting or wage software packages, will not be heldresponsible if errors arise from using their packages, particularly if youamend the functions of the package. Purchasers must exercise due diligence toensure that services meet the specific requirements of their organisations.

There is significant value in getting pre-emptive advicefrom a workplace relations lawyer and accountants conversant with your payrollobligations, to ensure that your NFP organisation remains compliant with itsemployment 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.