Wage underpayment and theft have come under increased scrutiny in recent years, leading to heightened regulatory oversight. As a result, directors are now expected to ensure that management implements robust systems and processes to provide the necessary assurance.
Wage underpayment occurs when employees receive less than they are entitled to, while wage theft refers to the intentional underpayment of workers. Although the intentions behind each practice may differ, both instances significantly heighten the risk to an organisation's financial stability while also causing reputational harm and eroding stakeholder trust.
Recent legislative changes have heightened the maximum penalties that can be imposed on directors personally, increasing their accountability for negligence and awareness of underpayments. Together with the Fair Work Ombudsman’s recovery of $473 million in wage underpayments in 2023-24, underscores the urgent need to establish, monitor, and ensure compliance across employee wages.
For directors, understanding the implications of being named as an additional party in underpayment cases is crucial for accountability — essential not only for safeguarding the health of their organisations but also for protecting their personal reputation and avoiding potential penalties that may be imposed on them.
In this blog, we explore proactive steps directors can take to mitigate the risk of non-compliance, protect their reputation, and promote good governance and fair wages for all employees.
What steps can directors take to ensure accountability in wage compliance?
By taking proactive steps, directors can protect their organisations and demonstrate their commitment to effective wage governance. Here are some key tips:
- Fostering a wage compliance culture from the top down:
Prioritising the wellbeing of employees should be the cornerstone of any governance framework, as it cultivates a more informed and engaged workforce dedicated to upholding compliance standards.
To achieve this, directors should encourage Management to actively connect with employees, ensuring their concerns are heard and addressed. This can be accomplished through initiatives such as training sessions that educate employees about their rights, award structures, and payslips, while also highlighting payroll compliance red flags.
- Investing in real-time compliance monitoring:
Directors should make it a priority to encourage management to focus on automated systems that generate monthly board reports containing the essential wage metrics for compliance reviews.
By using dashboards to showcase key payroll data, awards, and enterprise agreements, management can swiftly identify trends, spot instances of underpayment or overpayment, and obtain immediate insights into compliance status. At a most basic level, with alerts in place for errors, management can take timely corrective actions, providing assurance to Boards that wage rules are current and aligned with legislative changes.
- Understanding the underpayment response plan:
Directors should be asking management what is the organisation’s underpayment response plan. If such a plan does not exist, this presents an opportunity to create and develop one. Directors must ensure that if an underpayment issue arises, a solid plan is in place, initiated by management, to address the situation calmly and effectively. This proactive approach will help the organisation navigate potential challenges with confidence and clarity.
- Monitoring and evaluating process improvements:
Too often, directors accept management's "best effort" without insisting on a transparent and auditable process. To ensure wage compliance, it is vital to establish measurable goals and key performance indicators, monitored through robust systems that accurately collect necessary data. By tracking how quickly management resolves wage issues and identifying trends, directors can gauge whether momentum is stalling.
- Addressing root causes systemically:
By encouraging management to conduct root cause analysis—essentially investigating the reasons behind underpayments—directors can better understand the factors causing these problems and make informed decisions. Directors should hold management accountable for addressing these root causes and ensure that any corrective actions are taken and well-documented. Automated systems can provide valuable insights, helping teams quickly identify and resolve issues as they come up.
A need for a proactive approach
Given the increased scrutiny and emphasis surrounding underpayment cases, it is crucial for directors to assess and review their organisations approach to wage compliance. If uncertainty persists, it may signal that underlying issues remain unaddressed.
From our experience of conducting over 100 wage reviews, these concerns could stem from simple process errors, lack of awareness of obligations or even limited communication across the functions responsible for payroll compliance—all of which can only be effectively identified through diligent monitoring and a robust wage compliance process.
By embracing a proactive approach that leverages automation and technology while fostering a culture of accountability, transparency, and continuous improvement, directors can help management significantly mitigate the risks associated with wage underpayment and theft —and importantly safeguard the organisation and their reputation.
