Not just a payroll problem: The risk of underpayments for the C-suite and board members

There’s a common misconception that the consequences of non-compliance are placed only at the feet of the payroll department. This, however, isn’t the case. 

The introduction of the salary award obligations, combined with the far-reaching powers of the FWC to prosecute organisations that underpay staff, mean that C-Suite and company boards are well and truly in their crosshairs. 

In early 2020, when one of Australia’s largest retailers was found to have underpaid its staff by $20 million, Fair Work Ombudsman (FWO) Sandra Parker placed the responsibility specifically on the C-level executives and board members. 

“I am calling on boards to seek assurances from their chief executive officers that wages are being paid to employees in accordance with the law. The buck ultimately stops with the chair,” said Ms Parker. 

It’s therefore critical that as a C-level executive or board member, you are aware of not only the organisational risks posed by non-compliance, but also those posed to you personally.   

What are the risks for C-level executives and boards? 

The FWC states that in the event of an organisation contravening Australian workplace laws, they can take the matter to court to prosecute the organisation OR a person within that organisation, if they were involved in the contravention.

A person involved in the organisation’s contravention may include a: 

• Company director or company secretary 
• Official of the organisation 
• Human resources manager or other manager
• Accountant  

Court action may result if, for instance, an organisation underpays its staff and fails to rectify the underpayment within required timelines. Or the organisation fails to meet the record-keeping requirements of the salary award obligations introduced in March 2020. 

Organisations have an obligation to investigate and rectify any contraventions of workplace law. And any individual within that organisation who’s aware of a contravention, or is suspicious of a contravention potentially occurring, is also responsible for taking action.

What are the possible financial penalties for C-level executives and board members? 

If litigation is successful, an individual can receive a maximum fine of $13,320 per contravention. Or for a ‘serious contravention,’ a maximum of $133,200. 

A serious contravention happens when the court finds that: 

• The person or business knew they were contravening an obligation under workplace laws 
• The contravention was part of a systematic pattern of conduct affecting one or more people 

If an organisation is found guilty, it can receive a maximum fine of $66,000 per contravention. Or for a ‘serious contravention,’ a maximum of $666,000.

Government has indicated a willingness to increase these fines, which if passed, will increase fines for individuals to $19,800 per contravention, up to a maximum of $1.1 million. Organisations could be fined $99,000 per contravention, up to a maximum of $5.5 million.

Currently, an organisation may also receive a court order to: 

• Make an employer or other person pay an employee their outstanding entitlements (plus interest) 
• Require someone to do something (e.g. give an employee their job back) or undertake training or do an audit 
• Restrain someone from doing something (an injunction or interim injunction) for example, stop discriminating against an employee, or 
• Pay an employee compensation for loss suffered

A directive from Fair Work: The C-suite and board members are ultimately responsible for ensuring payroll compliance 

Given the rhetoric of the FWO, and the power it has to prosecute individuals within an organisation, the message is clear. 

Preventing annual salary underpayments is not just an issue for payroll and HR teams. The buck ultimately stops with C-level executives and company boards. 

The onus is on board members to proactively ensure the organisation maintains compliance with the salary award laws introduced in March 2020. This includes satisfying the reporting obligations that took effect from March 2021, which entail enhanced record-keeping requirements and making any underpayment reconciliations. 

Board members must ensure their organisation has the systems in place to guarantee that employees are paid what they are legally entitled, and to take action when employees issue concerns or complaints.  

Given the rising number of salary underpayments cases being exposed by the FWO, now is the time for board members and the C-suite to ask whether they can validate their compliance with the new laws and obligations.