In early 2020, Australian conglomerate, Wesfarmers, owner of Target, revealed that it had underpaid employees of the retail chain by around $9 million over 10 years. The revelation adds to an underpayment ‘epidemic’ amongst Australian businesses: Wesfarmers also recently disclosed that thousands of workers across its subsidiary companies had been underpaid by around $30 million over the past decade, while another conglomerate, Super Retail group, revealed that it had underpaid employees of its subsidiaries by over $60 million in the past 8 years. Both companies have pledged to rectify the error as soon as possible.
Given the size of the underpayments, the firms involved have been scrambling to explain the errors, focusing on the incorrect application of payroll software and the complexities of Australia’s labour regulations.
CEO of Wesfarmers, Rob Scott, and Super Retail Group managing director, Anthony Heraghty, have both focused on incorrectly-configured payroll software as the key cause of the employee underpayment trend at their companies. A variety of global payroll applications are popular with Australian employers including SAP, Kronos, and Infor: the current problems are thought to stem from software’s difficulty in interpreting Australian awards.
In Target’s case, Scott points out that the payroll software used by the company and its subsidiaries was bought from offshore vendors and was not configured or compatible with Australia's complex labour regulations - an issue that resulted in a pattern of underpayment over several years. Scott elaborated on the cause of the software errors, stating that “the configuration of various enterprise agreements” within Wesfarmers’ payroll system was “at the heart of a lot of the issues”.
As an example of a specific configuration issue affecting Wesfarmers, Scott cited Target’s overtime payment process. The company’s enterprise agreements involve an overtime rate that becomes effective after 19 days of work within a single month. The payroll software that Target was using failed to capture that threshold limit, and did not load overtime rates for employees.
In the wake of the underpayment trend, and the disclosures by Wesfarmers executives and other high-profile businesses, Australia’s government has moved to scrutinise private sector payroll more closely. Australia’s Attorney-General, Christian Porter, has told business owners to “get their house in order” by rectifying underpayment issues, or face potential criminal penalties. Porter has framed the underpayment incidents as “wage theft” and raised the possibility of the Morrison government introducing new legislation to address the problem.
In a discussion paper released in 2019, Porter suggested imposing proportionate fines and even jail terms for employers found to be engaged in wage theft or the similar exploitation of employees. Using the Fair Work Act 2009 as a reference, wage theft incidents could result in fines of up to $5.25 million for companies or up to $1.05 million for individuals, and jail terms of up to 10 years.
Addressing Payroll Problems
In order to avoid underpayment issues and the potentially significant penalties associated with them, employers in Australia should understand how to configure their payroll systems correctly to meet the terms of their agreements. In practice, that means regularly updating payroll software to manage changes in awards and enterprise agreements.
The shortcomings of the Wesfarmers and Super Retail Group payroll systems may be attributable, to an extent, to an underinvestment in technology and a subsequent inability to introduce new processes and policies to account for emergent wage complexities. Accordingly, employers in Australia who are worried about their potential vulnerability to underpayment issues should conduct a full review of their payroll technology infrastructure and, if necessary, update or replace outdated systems.
Find out more about Australian payroll rules and regulations in our Australia Global Insight Guide, which also contains information and insight on the country’s tax and social security landscape, global economic profile, and common business practices.