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What explains the $300 million underpayments at Woolworths? No, the IR system is not that complex

20th November, 2019

An edited version of this post was published in The Conversation on 11 November 2019: No, a complex system is not to blame for corporate wage theft

The PR spin from Woolworths flowed freely when the story of its massive underpayments affecting almost 6000 staff broke a few weeks ago.

In full-page newspaper ads that week, CEO Brad Banducci said: ‘We pride ourselves in caring for our people, but this time, we have let many of them down. For that we are deeply sorry.’

At the same time, the CEO struck a different tone by also claiming that: ‘This is a very complex issue which needs an industry-level dialogue on it. At the right time, we’d like to come back and talk about the lack of flexibility in [awards] when interpreted literally.’ (quoted in Sydney Morning Herald, 30 October 2019)

It is a common refrain from the major businesses caught underpaying their workers to blame the complexity of Australia’s industrial relations system.

They are wrong for the following four reasons:

  1. The system is not as complex as employers claim

Australia’s workplace relations system has evolved considerably in the last 15 years. We used to have an inter-locking web of federal and state industrial relations laws and tribunals. But since 2005, the national system now regulated by the Fair Work Act covers corporations around the country, while state IR laws mostly cover state public sector workers.

The award system has been modernised: we have gone from several thousand federal and state awards to just 122 federal awards applying to specific industries. Moreover, the Fair Work Ombudsman has an array of (free) award and pay rate checkers and other tools on its website.

  1. Employers have the capacity to deal with complexity

I am not saying the system is devoid of its intricacies. But how are large corporates – in some cases multinationals – unable to invest in getting advice and implementing the systems they need to ensure compliance? They have an industry of lawyers, advisers and employer organisations at their disposal.

  1. Businesses have made things more complex for themselves – and come unstuck

The Woolworths case – and other recent instances of wage theft including those at George Calombaris’s Made Establishment restaurant group and Neil Perry’s Rockpool restaurants – have involved employers tripping up on the use of annualised salary arrangements.

Woolworths had placed around 5,700 staff, mostly department managers, on annualised salaries of (on average) $73,000. These annual amounts were intended to cover the ordinary working hours and overtime of the relevant staff, to ensure they received at least (or more) than the payments they would be entitled to under the General Retail Industry Award. However, it became apparent that the annual amounts were not sufficient to achieve that goal once the actual hours worked by managers were calculated.

Annualised salaries are a kind of ‘fix’ used by a lot of businesses to roll up the overtime and penalty rates that workers are entitled to under an award into an annual sum. This is often done for convenience and to make payroll systems easier to manage. But it’s only lawful if the business ensures that employees receive (overall) the equivalent of their award entitlements. Done properly, this requires regular checks and monitoring – which it is now clear many businesses caught up in underpayment scandals have not been doing.

The Fair Work Commission has recently settled on new annualised salary provisions in several awards which will stiffen up the obligations on employers to carry out these checks, and properly inform employees of the implications of signing up to annualised salaries.

  1. Paying workers properly is not a top priority

There are many other dimensions to running a large business that are ‘complex’ including compliance with health and safety, tax and consumer laws. In the supermarket business, there is also food safety regulation and implementing the distribution, logistics and storage systems needed to ensure the products are available on the shelves when we want them.

So where does workplace law compliance fit among these competing priorities? The central problem is that despite all the talk of how much ‘we value our people’, many employers are not rating highly enough the need to ensure staff are paid what they are owed.

We have also seen many instances in Australia recently of more blatant, intentional underpayment. While some businesses groups have pushed back on the notion that wage theft exists, or that it should attract criminal penalties, even federal IR Minister Christian Porter now uses that term to describe underpayments. The Coalition Government has released a discussion paper exploring options for new criminal offences for the most egregious, systemic forms of underpayment.

This is a necessary step, because there isn’t a sufficient level of deterrence in the system now. But when the Woolworths CEO is complaining about the ‘literal’ interpretation of awards, it’s clear we also need a major shift in corporate culture.

Put simply, big business must accept responsibility for wage theft instead of blaming the IR system.

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