The issue of employee underpayment has repeatedly made headlines in recent months, brought to the attention of the public by repeated fraud cases involving large corporations. Small businesses, however, also frequently underpay their employees in Australia. Worse, an April analysis of tax data by Industry Super Australia concluded that a third of eligible workers in the country were being underpaid superannuation.
With recent changes to the Fair Work Act being implemented to protect workers, and increasing public awareness, businesses need to get to the bottom of the issue. More than ever, SMEs must ensure that their employees are paid fairly and in compliance with all relevant regulations, or face consequences from the law as well as their own labour pool.
Overconfidence and distraction lead to a lack of vigilance
In reference to general underpayment issues by regular Australian businesses, Acting Fair Work Ombudsman Kristen Hannah stated “Business operators can become overconfident and as we have seen, this can lead to mistakes like forgetting to pass increases applied in the annual wage review or paying your workers at the incorrect level within the modern award.”
Unlike CEOs of large companies who typically have a well defined role, the responsibilities of small business owners tend to encompass nearly every aspect of their business. As a result, many are too busy to keep track of relevant new legislation, and too distracted to notice whether a worker received the pay increases they were due.
In the past, business owners in this situation were relatively protected by a lack of legal accountability as well as the ignorance of their own employees. Now, open discussion of the issue is helping to improve employee awareness, even as regulatory action by the government is sharpening penalties on business owners.
Rising pressure from the Fair Work Act
While underpayment has never been openly tolerated by the government, recent changes to the Fair Work Act has made it significantly more important for businesses to stay on top of their workers’ rights to fair compensation.
Where employees would have had to go out of their way to build a case for themselves before, the burden of proof in underpayment disputes is now on businesses. This means they need to keep compliant records to make sure that they can legally verify that employees were fairly compensated in the event of any dispute. A failure to keep the necessary records can now be penalised with a significant fine, in addition to obligating the business to make significant back payments to the relevant employee.
Increasing employee awareness
While the threat of unexpected litigation is certainly real for careless business owners, the increased level of awareness on the part of workers shouldn’t be discounted for its own sake either. Running afoul of underpayment issues in your own business could cost you some of your most valuable employees, while deterring new top level candidates.
Workers most likely to become aware of, and act on, an underpayment issue with their own salary are those who are well informed and meticulous, and who have the initiative and will to do something about it. Those same individuals are also the type of job candidates who might now think to research any available public court records, or simply do a Google search, to try to evaluate your business before accepting a position.
Staying on top of payment issues then, and cultivating a reputation as a business that takes its employees’ rights very seriously, may be an even more significant advantage in recruiting top level talent in the coming years.
What SMEs can do
For Australian SMEs, now is a great time to be proactive in addressing this issue. Businesses need to take the time to determine whether all their employees are being paid fairly, paying special attention to their superannuation payments, and then make appropriate adjustments. Those adjustments, beyond impacting future budgeting, will also generally require issuing a significant amount of back-pay.
Finding a way to pay
SMEs don’t typically have a lot of extraneous funds lying around to handle this sudden strain on their budgets, but neither can they afford to wait. Finding a way to cover both raises and back payments overnight is likely to require some creative cash flow management, whether that’s by finding a way to defer other outgoing payments, or by coming up with additional funds to cover the costs.
An excellent tool for accessing funds that should already belong to your business is to use invoice financing. This allows a business to exchange unpaid invoices for most of their value at their financial institution. In effect, you’re giving yourself an advance on future revenues. If you don’t have sufficient invoices outstanding to cover the costs, you can also make use of other options like an unsecured line of credit to come up with additional funds.
By moving on this issue proactively, SMEs can demonstrate their integrity and reaffirm their commitment to their workforce, turning what might otherwise have turned into a negative news story into a positive message about your business.