Thank you Consultancy.com.au for sharing my thoughts on wage theft.
As wage theft criminalisation laws draw closer, Australian government and industry need to come together to solve chronic wage theft issues that have plagued the nation for years, writes Jarrod McGrath, CEO of HR consulting firm Smart WFM.
Unless you’ve been living under a rock, most people in Australia would be familiar with the wage theft scandal that has plagued employers and workers for years.
Domino’s, a major restaurant chain, Australian universities, Woolworths, Commonwealth Bank, the Reserve Bank of Australia, and a host of others have all been caught underpaying staff, paying dearly in terms of reputation and real cost. And that’s just the big end of town; hundreds of restaurants, retailers, media outlets and more have also been reprimanded.
Australia may actually be the unlucky country if so many major employers are out to keep people from being fairly paid. But is that really the case? My experience having worked in workforce management for decades with a range of blue collar, white collar and government organisations is: absolutely not.
The fact is no employer wants to underpay, no more than they would want to overpay – which happens too, but we just don’t hear as much about it as often.
No matter their motivations or how they feel about their relevant award rates, the nation’s minimum wage requirements, people who lead relatively successful companies know enough to know that they should be compliant and avoid ending up on the wrong side of the Fair Work Commission.
The truth is employers underpay and people become underpaid because of a very complex, poorly understood system of people, processes, and technologies that are supposed to govern the laws that dictate minimum payment requirements, and the mechanisms for which people get paid.
In a nutshell, how most people in Australia are paid can be broken down into three steps:
1) Negotiation
The is the determination of the industrial instrument – which includes award rates and enterprise agreements – relevant to the role. Employer-to-employee and union negotiation over and above that are also part of this step.
2) Payment
As the name suggests, this is the mechanism to work out the rules for payment and to pay staff. It’s typically handled by payroll but sometimes directly from company management, particularly for smaller businesses. There are a range of workforce management and payroll technologies involved at this step; we’ll come back to them later.
3) Reconciliation
This is where payments are (or should be) reviewed to ensure they’re compliant with the industrial instrument. Naturally, this brings it full circle, but many companies don’t reconcile or don’t do so properly, which can provide fertile ground for underpayment issues to fester.
What connects these three payment pillars? Well, therein lies the problem and the core of Australia’s wage theft issues – the answer is nothing.
The operative word here is traceability. While there are many technologies, processes, and people involved in each step here, there’s no one tool or fabric that connects it all together. It’s a classic ‘left hand doesn’t know what the right hand is doing’ issue, but this is a many-handed creature and the disconnect leaves people underpaid and feeling rightfully dejected and angry with their employer.
This is a huge crisis and I firmly believe it’s central not just to the underpayment issue, but to our lagging productivity, quiet quitting, and the overall divide that has grown between those at the top and those at the coal face. In terms of opportunity cost, I believe not fixing this issue will see Australia fall short of its ambitions to be a global leader in clean energy, AI, manufacturing, or anything else on the wish list.
We need stakeholders including government agencies like the Productivity Commission and Fair Work Commission, as well as the payroll and workforce management industries, to come together to build a traceability software layer that sits underneath these payment pillars and flags potential issues, ideally before the payment is even made.
We’ve automated so much in life, why not something that is so important to every single worker, and to the success of our economy?
And the time to do this is now. Employers are all too aware of the Compliance and enforcement: Criminalising wage theft Act that will see underpayment criminalised and fines of up to three times the value of the underpayment applied. This kicks in from the 1st of January 2025 and I can tell you, Australian businesses are not ready for it.
I sympathise with the nation’s employers – paying people correctly is not as easy as it should be, and it’s been made more and more complicated by ever-changing industrial relations (IR) rules and successive governments who have ignored the issue.
But rules are rules, and until government and industry come up with a better solution to join the payment dots, employers know what’s coming. They need to get their heads around how payments work and where they might be exposed now, and do what’s right for the people that drive their business.
About the author: Jarrod McGrath is CEO of Smart WFM and author of The Modern CEO and The Digital
Solving these types of issues are a key focus for Smart WFM and we’re proud to deliver compliance and productivity consulting to some of Australia’s leading organisations. Find out more about what we do.