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The $100,000 reason to keep your payslips and employee records in order

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6 Jul 2018

With the start of the new financial year and the annual increase in minimum wages, many businesses have most likely reviewed their pay rates and modern awards to ensure their company’s compliance in this regard. However, many businesses are failing to get some of the other basics right when it comes to record-keeping for their employees. In this week’s article we review an employer’s obligation in relation to payslips and employee records, the Fair Work Ombudsman’s current campaign on this issue and we review a recent decision which has imposed a record fine as a result of inadequate record-keeping.

Employer’s obligations

Record-keeping requirements are contained in the Fair Work Act 2009 (Cth) (“FWA”) and the Fair Work Regulations 2009 (Cth) (“Regulation”). In particular, under the FWA an employer is required to make and keep employee records for seven years. The FWA also stipulates that an employer must provide a payslip to an employee within one working day of paying the employee in respect of their work. Both these are mandatory requirements and incur civil penalties.

The Regulation requires employers to keep records in legible English and each employee record must include the employee and employer’s name, whether the employee is full-time, part-time or casual, date employment commenced and terminated (if applicable) and the ABN of the employer. Employers must also maintain an employee record which includes rate of remuneration, any deduction of wages, hours worked by each employee (if they are entitled to overtime or penalty rates), details of any bonus, penalty rate, loadings or monetary allowance payable to the employee, overtime hours, overtime pay, superannuation contributions (including name of fund, amounts, period over which the contributions were made) and if the employee is entitled to leave, any leave the employee takes and the balance of the leave entitlement. Additionally, if the employer and employee agree to an individual arrangement in respect of averaging hours, or entering into a guarantee of annual earnings, or the cashing out of accrued annual leave, employers must make and keep a copy of the written agreement as part of the employee personnel file.

In relation to payslips, the Regulation requires certain information to be provided in an employee’s payslip. These include the name of the employer, the employee’s name, the period to which the pay slip relates, the date on which the payment was made, the gross amount of payment, the net amount of payment, any amount to be paid as a bonus, loading, allowance, penalty rate, incentive based payment or other entitlement, the employer’s ABN number, the superannuation contribution and if the employee is paid an hourly rate, this should also be disclosed on the payslip as well as the number of hours worked. The Regulation enforces the above requirements by way of civil penalties.

In addition, changes by the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 introduced at the end of last year amended the FWA to include penalties for ‘serious contraventions’ of workplace laws, increased penalties for breaches of record-keeping and payslip obligations and introduced new penalties for companies who provide false or misleading information.

In particular, the introduction of the new amendments provides for penalties of up to $630,000 per contravention for companies involved in ‘serious contravention’ and $126,000 per contravention for individuals. A serious contravention will include the intentional conduct where the person's conduct was part of a systematic pattern of conduct relating to one or more other persons. In this context the systematic underpayment of employees coupled with the failure to keep proper records will amount to a serious breach. It has also doubled the maximum penalties for record-keeping and pay slip breaches to $63,000 per contravention for companies and $12,600 per contravention for individuals and tripled existing penalties for cases where employers give false or misleading pay slips to workers, or provide the FWO with false information or documents.

Furthermore, a reverse onus of proof now applies, meaning that employers who do not meet the record-keeping or pay slip obligations and are unable to give a reasonable excuse will need to disprove allegations of underpayments made in a court.

Fair Work Ombudsman Campaign

In April 2018, the Fair Work Ombudsman (“FWO”) commenced a national campaign titled ‘The Workplace Basics Campaign’ which will see the FWO conduct audits across a number of businesses (including a focus on small businesses) to ensure that employers are complying with fundamental workplace obligations.

The FWO has advised that through the campaign they are seeking to address its concerns that many employers are continuing to struggle with basic workplace obligations such as base hourly rates, penalty rates, overtime, record-keeping requirements and payslip requirements. The FWO have also announced that the campaign will not only have a strong audit and education focus, but the FWO will use its compliance and enforcement powers where required.

Recent case law

A recent decision of the Federal Circuit Court of Australia demonstrates the importance and subsequent costs to all parties where employee records are not kept and/or maintained, and where respective legal obligations and compliance requirements are not met. In the decision of FWO v Aulion Pty Ltd & Anor SYG 3642/2017 the FWO brought proceedings against Mr Peter Dagher and his company Aulion Pty Ltd. The company formerly operated a Caltex service station in Five Dock. The proceedings were initiated after the FWO had undertaken a national investigation of 25 Caltex stores in response to concerns about underpayment and other non-compliance issues.

As part of the audit, the FWO issued Notices to Produce to Mr Dagher and the company.  In response, Mr Dagher and the company provided a range of documents, including contracts of employment, time -and wage records, payslips and earning summaries for six employees who were migrants and international students. However, the FWO became concerned that the information contained in the documents did not accurately reflect what the company paid the employees and as such, the FWO issued further Notices to Produce to a bank, superannuation fund and Aulion’s accountant. As a result of the further Notices to Produce, the FWO found great inconsistencies between the documents.

During the Court proceedings, Mr Dagher admitted that the reason for the inconsistency was that they had falsified documents and records. Mr Dagher had also breached laws in relation to not providing accurate payslips to employees within one day of payday. Consequently, His Honour ordered Mr Dagher and his company to pay almost $100,000 of penalties between them (specifically, $16,038 and $80,190 respectively). The decision is the highest penalty secured by the FWO in a legal action relating solely to record-keeping and payslip breaches.

It is important to note that the breaches for which Mr Dagher and his company were penalised occurred in 2016. As such, the decision serves as a warning that higher penalties are now possible, and very likely in the future under the introduction of the new legislation.

Furthermore, there is an increasing onus being put on professional advisors (such as HR professionals, bookkeepers, accountants, payroll advisors and so on) to ensure they know the rules and are vigilantly providing advice to their clients. In this regard, the FWO have consistently warned professionals that they cannot avoid responsibility for their client’s breaches and the FWO are taking a firm approach to hold professionals accountable through the accessory provision within the FWA.

This was highlighted last year when the FWO for the first time prosecuted an accounting firm in relation to its role in a client’s breach of the FWA. In the decision of FWO v Blue Impression Pty Ltd & Ors [2017] FCCA 810 and FWO v Blue Impression Pty Ltd & Ors (No 2) [2017] FCCA 279, the employer was a Japanese fast-food chain in Melbourne and the FWO prosecuted them for underpaying two of its workers. The FWO commenced legal proceedings against the operator of the fast-food chain, one of its managers and the employer’s accountancy firm which provided bookkeeping and data entry services and was run by a certified practicing accountant.

The accountancy firm claimed that they were simply following the client’s order and had no real authority to question the payment arrangements of each employee and thus simply entered the details and processed them through MYOB. In determining the matter, the Court found that the accountancy firm had intentionally ignored the breaches of the FWA in processing the underpayments. As such, the Court ordered the accountancy firm to pay pecuniary penalties of $53,880.

Lessons for employers

In light of the above, it is critical businesses have implemented and are consistently following correct processes and practices for their business. Employers should consider and review the following within their business:

  • whether you are applying the correct modern award or relevant legislative instrument to your employees;
  • Conduct an audit of your current practices to ensure your business is paying the correct hourly rates, penalty rates, overtime, loadings, applicable allowances and ensure annualised salaries are sufficient to cover all employee entitlements – we suggest seeking appropriate legal advice if you are unsure;
  • Ensure your business record keeping practices are up to date and in order;
  • Develop or ensure you have robust processes in place to manage employee onboarding and remuneration;
  • Ensure you are providing appropriate payslips to employees (these should include the record of superannuation and leave accruals);
  • If you are a franchisor or holding company, ensure your franchisee or subsidiaries are compliant with their workplace obligations;
  • Ensure you are paying correct superannuation, tax and employee entitlements; and
  • Provide proper and adequate employment contracts to all employees and appropriate contractor agreements to contractors.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.