Could your organisation be at risk of underpaying its staff?

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Sep 06, 2024

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In recent years, the Fair Work Ombudsman (FWO) has adopted a tough stance towards material underpayment and non-compliance by Australian businesses, including those in the early childhood education sector, as evident in the latest case involving The Ella Group (NSW) Pty Ltd. Many of these cases resulted in significant penalties, interest payments on top of back-pay, as well as reputational damage to the business.

Now the repercussions are set to become much more severe with the introduction of criminal offences for employers who intentionally underpay their employees starting on 1 January 2025.

Underpayments in the early childhood education sector

If an early childhood education centre suspects or identifies underpayment issues, the FWO encourages self-reporting as it can help reduce the likelihood of enforcement actions. For isolated payroll errors affecting wages for up to a year, the FWO is more likely to use non-litigious and non-punitive compliance measures.

In 2019, Only About Children, which operates over 70 childcare centres across New South Wales, Victoria and Queensland, discovered that its payroll system had incorrectly calculated overtime entitlements. The mistake led to underpayments for casual and part-time employees who worked more than eight hours in a day, affecting their overtime entitlements under the Children’s Services Award 2010 and the Educational Services (Teachers) Award 2010.

The company self-reported the issue to the FWO, resulting in over $1.59 million in back payments to 2,144 current and former employees, and an Enforceable Undertaking with the FWO. Under the Enforceable Undertaking, the company was required to implement measures to protect its workers. This included engaging an expert auditing firm at its own expense for the following two years to demonstrate it had developed processes to ensure future compliance.

Only About Childcare was also required to publish an apology to its workers in The Australian newspaper, set up a hotline for six months for its employees, post a notice at each childcare centre, on its website, and on social media detailing its breaches.

Similarly, in 2020, ASX-listed G8 Education, a major childcare centre owner, also faced an underpayment bill for 27,000 workers reaching up to $80 million. The underpayment was identified as part of a compliance audit and was voluntarily reported to the FWO. G8 Education has since instigated a remediation program rectify the 6.5 years of underpayments owed to its employees.

In both of these cases, as the operators took a proactive approach to identify errors and self-reported to the FWO, no penalties were sought by the FWO.

On the contrary, on 9 August 2024, the FWO announced that it has commenced legal action against the Ella Group (NSW) Pty Ltd for underpaying its young worker and failing to comply with a Compliance Notice, and has sought, among other orders, penalties against both the company and its the director.

These cases serve as a reminder to all businesses what is at stake if they fail to ensure rigorous compliance with awards and enterprise agreements. More importantly, with the introduction of criminal offences for intentional underpayments, operators of early childhood sectors can no longer afford to ignore suspected underpayment issues.

Getting on the front foot

To prevent underpayment issues from accumulating, early childcare centre operators should take several actions to review their compliance. These include:

ensuring that the correct industrial instruments are applied to the organisation and to the different groups of staff
regularly reviewing and updating employees’ classification levels
ensuring applicable industrial instrument entitlements are interpreted correctly and seek legal advice where appropriate
conducting a review to ensure applicable industrial instrument entitlements are correctly coded into the payroll system
reviewing annualised salary practices to ensure that salaries are sufficient to cover the minimum wage to which each employee is entitled under the relevant instrument
seeking legal advice if anomalies are identified to determine the nature of the issues, whether it amounts to a contravention, and any steps required to meet legal obligations.

To assess if your organisation could be at risk of underpaying its staff, Holding Redlich can assist you with reviewing your organisation’s compliance with awards and industrial instruments under a legal lens and instruct other specialists to provide you with the appropriate legal advice to manage and rectify any areas of risk exposure. If you need assistance or have any questions, please get in touch with Special Counsel Virginia Liu.

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