ESG (Environmental, Society, Governance) (sometimes known as CSR, or Corporate Social Responsibility) is an established focus for many listed and private companies. It allows shareholders, investors and consumers to assess a business' performance in traditionally non-financial areas and is becoming increasingly important in corporate decision-making.
ESG has traditionally encompassed areas like sustainability, diversity and inclusion, human rights and executive pay. However, we are recently seeing more and more Boards and senior leadership teams focus on payroll and workforce compliance as part of their ESG strategy and forward-planning. This perhaps isn’t a surprising development, as workforce compliance clearly straddles both the Social and Governance elements of ESG. What this will likely mean in practice is:
Workforce compliance will require due diligence proof
Investors and shareholders will increasingly require tangible assurances of workforce compliance. Whilst this has often been the case in an acquisition context, businesses can expect this to become a more common general expectation. These groups will want to know both that historical issues have been identified and addressed and what proactive steps are being taken to ensure non-compliance does not arise in the future.
Ongoing compliance will need more regular reporting measures
Stakeholders (shareholders, investors and consumers) will expect to see additional and regular reporting on the ongoing compliance measures and checks and balances in place to ensure people are being paid correctly. This will be separate and in addition to any other reporting that is required arising out of historical underpayments that have been identified.
Employers will have to think forward; not just backward
Where issues are identified, it won’t be enough to conduct a simple wage remediation. As well as superannuation and payroll tax, there will be an expectation that payments across the board are fixed up. This will include long service leave, workers’ compensation premiums and payroll tax.
This shift in expectations comes off the back of highly-publicised underpayment cases leading to significant reputational damage, additional enforcement action by the FWO, changing community expectations around workforce compliance, and an increasingly low tolerance for failure by businesses to ensure their employees are paid their entitlements.
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