What do a well-known Sydney restaurant chain, a Melbourne IT company and a Brisbane engineering business have in common? They’ve all been penalised for underpaying staff in 2024.

Australian small and medium businesses are facing closer scrutiny and heftier penalties for failing to provide their employees with all of their legal entitlements. While most businesses don’t set out to underpay staff, the consequences are enormous if your house isn’t in order.

Changes to the Fair Work Act

Recent changes to the Fair Work Act offer quite the wake-up call. The Closing Loopholes Bill has increased civil penalties for ‘serious contraventions’ to $4.7 million and introduced new criminal ‘wage theft’ offence for knowing and intentional non-compliance (with penalties of up to 10 years imprisonment and $7.8 million in fines).

The Act has also introduced potential complexity for employers with new definitions for ‘casual employee’ and ’employee-like worker’ (like an independent contractor), as well as introducing new labour hire rules.

At the same time, the Fair Work Ombudsman (FWO) has ramped up pay compliance checks on businesses of all sizes. While the top end of town often makes the biggest headlines, FWO have recovered $445 million in unpaid wages from small-medium employers in the past two financial years – including $193 million in FY23.

We’ve seen this trend continue in 2024, with a long list of businesses penalised, including a former restaurant chain being fined $4 million for underpaying workers and using false records – the second-highest ever penalty secured by the FWO.

Outside of these headlines, more commonly, employers face the challenge of navigating smaller slip-ups on the range of complexities across modern awards, tax and super obligations, leave entitlements and record-keeping requirements.

But not being aware of your obligations is no longer an excuse the FWO will tolerate. Employers hold the responsibility to inform themselves and take active steps to comply, says Vivienne Hardy, Partner in Charge of KPMG ThinkPay: Human Capital Risk & Compliance Services.

“Being an employer in 2024 means that you need to understand your legal obligations and what they mean for your workforce” says Hardy.

“The expectations on senior management and Boards is definitely heightened, requiring positive action to make yourself aware of your obligations and what should be happening on the ground to comply.”

Ignorance is not bliss

Hardy works with employers every day to help navigate the challenges of regulatory, reputational and legal risks around wage compliance.

She says that common pitfalls she’s seeing include:

• Salaried employees missing out on award requirements.
• Flexibility in working hours triggering different payment obligations and entitlements, for example, overtime or meal allowances.
• Triggers for casual workers to be offered permanent full-time roles after 12 months.

While there’s no “silver bullet”, there are many steps you can take to minimise your risk, says Hardy.

“Businesses want to do the right thing,” she says. “But too often they just don’t know where to start. Employers don’t always know the impact of the decisions that they make, as what makes operational sense may have unintended consequences for compliance – such as changing shifts to cover gaps without realising the additional penalties or overtime entitlements that can create.”

A masterclass for all employers

Whether you manage HR or payroll functions in-house or rely on software to help carry the compliance load, there are processes you can implement to prevent major headaches down the line. 

Vivienne Hardy will explore the subject in depth in our next free online masterclass, Are You Paying Your People Correctly? What Every Small Business Needs To Know, on Wednesday, June 5, 11AM (AEST).

Kochie’s Business Builders host David Koch will be joined by Hardy and fellow industrial relations specialist Joshua Forrest, to run through proactive steps businesses can take.

Register to join the free masterclass here or click the image below.

Hardy previews some of the tips and strategies to be discussed:

1. Setting up well

“You need to have a very clear process in place when you’re hiring someone. What do you need to have in place in terms of the correct contract? How do you implement and input the data into your systems in such a way that you’re setting that person up well from the very beginning?” Hardy says. “So what their role is, what rates they’re entitled to, what sort of classification they need to be set up against. Setting that upfront well is key.”

2. Proactive monitoring

“This is the ongoing monitoring that you then have in place to check that you’re getting pay right,” Hardy shares. “Whether it be doing some controls testing or running exception reporting to see if there’s anything that’s happening in your business that’s causing you to worry about how your workers are actually working.”

3. Accurate record-keeping

You don’t need to have fancy systems in place. Investing in smart, simple ways to manage your records goes a long way.

“What we’re finding sometimes is that many small-medium businesses don’t have systems in place to give them a good picture of how their employees are working,” she says. “These businesses don’t know when their people are starting and finishing, or when they’re taking breaks, which makes it very difficult to get pay right.

“The ability to check hours being worked, and whether you’re paying things like overtime correctly, is going to be really important to make sure you can demonstrate as an employer that you’re doing the right thing.”

Seeking legal advice is crucial, Hardy adds. There are also resources on the Fair Work Ombudsman’s website, like their pay calculator and guides for specific sectors’ awards, and a free online assessment of payroll risks on KPMG ThinkPay’s website.

REGISTER NOW for Are You Paying Your People Correctly? What Every Small Business Needs To Know, on Wednesday June 5, 11AM (AEST), from Kochie’s Business Builders in association with KPMG Australia.

This article is brought to you by Kochie’s Business Builders in association with KPMG Australia.