Why are businesses underpaying staff?

Melbourne mall
Chris Sheedy By Chris Sheedy, CA Today

4 December 2018

What’s behind the spate of Australian businesses underpaying their staff, and what arrangements in systems and staff could fix it?

Lush Cosmetics, a retailer that has become a darling across Australia, apologised in recent months for underpaying its staff up to a collective $2 million.

Not long before that, the Australian Red Cross confessed to a similar error; with average underpayments per affected staff member reaching around $1,800 per year over several years.

It seems to have begun, and should have ended, with 7-Eleven’s fall from grace in 2015.

UAE Exchange Australia, a foreign-currency exchange business, agreed to backpay 240 workers to the tune of $1.3 million and MAdE Establishment Group, owned by celebrity chef George Calombaris, had to rectify staff underpayments for 162 employees, totalling $2.6 million.

What are the triggers in the Australian business environment that have resulted in so many companies underpaying staff?

It seems to have begun, and should have ended, with 7-Eleven’s fall from grace in 2015 after the business’s $110 million wage theft was revealed, including payroll record doctoring.

We spoke with Monash Business School’s Professor Greg Bamber, co-director of the Australian Consortium for Research in Employment and Work and co-editor of the book International and Comparative Employment Relations, to find out how things went downhill so quickly.

In terms of staff underpayment, how does Australia compare to other countries?

Working arrangements differ in different countries, but this issue seems to be more prevalent in Australia.

In the book we categorise Australia as having a ‘liberal market economy’. This compares to a ‘coordinated market economy’, which is more typical in Europe, in countries such as Germany, Sweden and Denmark, etc.

We have a Fair Work Ombudsman, for example, and a Fair Work Commission... But this is still less enforcement than coordinated market economies.

Those countries tend to have a higher degree of regulation of workplaces and work arrangements. But it has become the norm in Australia, as well as the UK and the US, to try to deregulate employment arrangements and to leave it up to employers to manage.

In Australia we have some regulation - we have a Fair Work Ombudsman, for example, and a Fair Work Commission. They are tasked with trying to help regulate such matters. But this is still less enforcement than coordinated market economies.

Are underpayments in Australia intentional or simply a result of a complex system?

There are two categories of employer. One, and I put Lush in this category, tries to do the right thing but sometimes makes mistakes. Lush seems to be an ethical and conscientious employer that aims to do the right thing.

The business self-disclosed that it had made this mistake. Management was embarrassed and apologised. Mistakes are understandable because collective agreements, often referred to as industrial awards, are complicated.

And the second category?

I fear that 7-Eleven is in this category, and possibly many others. Their business model tends to depend on underpayment of employees. There’s a third category that we might call the ‘gig economy’, that don’t employ people but instead have a kind of sham self-employment arrangement.

They pretend people working for them are not employees even though they, in many cases, are wearing the uniform of the employer and are managed carefully by the company.

What can be done when it seems so widespread?

In the first category, the Fair Work Ombudsman is trying to make more education available to employers about how they can pay people appropriately.

In the second category the Fair Work Commission is trying to simplify the industrial awards, which should make it easier for employees to work out exactly what they should be paid. But it gets complicated when they’re working shifts and unsocial hours.

What solutions are there for the ‘gig economy’ category?

There is a lot of discussion around this right now. I don’t think we’ve got a grip on it because the regulators inevitably are always lagging behind.

Much of the employment law we know today was developed in the 19th century.

The ingenuity of entrepreneurs starting up new platforms and developing new employment arrangements runs ahead of the regulators, so they struggle to catch up.

Don’t forget that much of the employment law we know today was developed in the 19th century.

Would you expect us to move towards a more heavily regulated, coordinated market economy?

There are moves to introduce more regulation. We’ve seen push-back around Uber, for example, in Australia and other parts of the world. Another factor is a decline in the number of people who are represented by unions.

Also, small businesses used to have their wages managed by a local accountant or the company accountant, who knew the business and could spot something going wrong.

But there has been a move towards outsourcing of the pay arrangements, either through a computer program which perhaps can’t cope with the complexity, or through another provider who may be in another country and is not as familiar as they should be with local regulations.

What can the accounting profession do to help solve the problem?

Accountants can remind their clients of their responsibilities in this regard, letting them know that they are breaking the law if they’re underpaying, and that they can be subject to hefty fines and massive reputational damage if they get it wrong.

Auditors should also be taking an interest by recording these sorts of issues and nipping them in the bud, at the same time that they remind clients of their responsibilities.

About the author

Chris Sheedy is one of Australia’s busiest and most successful freelance writers. He has been published regularly in the Sydney Morning HeraldVirgin Australia VoyeurThe Australian MagazineGQIn The BlackCadillac, Management Today, Men’s Fitness and countless other big-brand publications. He is frequently commissioned to carry out copywriting and corporate writing projects for organisations, including banks, universities, television networks, restaurant chains and major charities, through his business The Hard Word.


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