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Hefty fine for payroll errors

Understanding the ramifications of record keeping and pay slip failures
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Hefty fine for payroll errors

Hefty fine for payroll errors

23 September 2019

By Joe Murphy, managing director, Australian Business Lawyers & Advisors
The vulnerable worker changes to the Fair Work Act 2009 in 2017 included a new dimension of liability for employers who are found not to have complied with record keeping and pay slip obligations.
Historically, a large number of employers tend to either rely on their payroll provider or otherwise unsatisfactorily ‘get by’ with records that are either non-existent or non-compliant.
The laws were introduced in an attempt to motivate employers to exercise a greater degree of diligence in their record keeping and pay slip obligations.
The laws introduced in 2017 meant that employers who were found not to have met their record keeping and pay slip obligations, and were unable to provide a reasonable excuse, would need to disprove allegations of underpayment made in court. This is tantamount to a ‘reverse onus’ or a ‘guilty until proven innocent’ approach.
This particular case initially involved an underpayment claim where employees were paid flat rates of pay between $16 and $22 and as a result were underpaid a total of $19,467.24 over a period of almost three months between 6 October, 2017 and 28 December, 2017.

The court accepted the underpayment was not deliberate and noted that the business was a small business. However, the court also noted that the established view of the courts is that the size of the business is not relevant to the need for employers to respect the obligations to ensure employees are paid in accordance with the law.
The Federal Circuit Court’s focus was on penalties after the employer rectified the claimed underpayment within 10 days of receiving a letter from the Fair Work Ombudsman alleging the underpayment.

Employees 'disempowered'

A major focus of the case was the employer’s failure to keep any employee records nor provide any pay slips to the employees.

The ramifications of record keeping and pay slip failures were noted to include that employees are unable to understand the basis for the payment they are receiving and employers are unable to keep track of basic details such as start dates, hours worked and rates of pay.

The court also noted that ‘without proper pay slips employees are significantly disempowered, creating a structure within which breaches of the industrial laws can be easily perpetrated’.
The potential maximum penalties in the matter for all parties (employer and directors) amounted to $793,800.  However, the court applied a ‘discount’ on the basis of cooperation (25%), rectification of underpayments (25%) and a further court imposed discount of 25%, with a total of 75% discount applied.
The resulting penalties were as follows:
  • $108,082.50 for the employing company
  • $10,631.25 for the second respondent
  • $3543.75 for the third respondent
  • $3543.75 for the fourth respondent

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