Why businesses should have compliant employment and payroll processes

System Alert

May 8, 2017

Recenty, MAdE Establishment Group (the Group) and its celebrity chef director and founder went public with a mea culpa that it underpaid the wages of at least 162 employees across its Melbourne restaurants.

The Group issued the public apology to employees for the underpayments which relate to the calculation of overtime rates and the incorrect classification of employees under the Modern Award for the past six years. The employees have since been repaid up to a total of $2.6 million.

In 2015, the Fair Work Ombudsman (FWO) alerted the Group of its concerns with the payment of wages to employees but no action was taken at that time. The Group has since agreed that it will work collaboratively with the FWO.

The full extent of the underpayments and process failures were not discovered until a Chief Executive Officer was appointed to the Group in October 2016. An internal review was ordered which identified issues in the payroll processes resulting in the incorrect classification of employees and miscalculation of overtime and in some cases, the overpayment of employee salaries. A full external report by KPMG later confirmed issues with the Groups processes and the incorrect payment of employees.

The Group acknowledged that the business, which was established in 2006, did not have adequate payroll and human resources systems to cope with its growth and size. The Group assured employees that it has since appointed the CEO and a Human Resources Manager and has put in place processes and systems necessary for the business.

For employers, the Group’s mishap demonstrates the importance of establishing compliant employment processes and payroll systems from the start of a business. Such processes include:

Having a contract of employment which is compliant with the Fair Work Act 2009 (Cth) (FW Act) and the relevant Modern Award;
Checking if an employee is covered by a Modern Award and correctly classifying the employee under that Modern Award;
Setting up payroll system to facilitate paying employees their applicable minimum entitlements (for example relevant overtime or penalty rates and superannuation); and
Having good employment record keeping practices. The FW Act obliges employers to keep, amongst other things, pay and leave records for seven years.

Start-ups and small businesses in particular may think that they don’t need to worry about having proper HR and payroll systems. However, as can be seen from this case, there are wide ranging financial and brand damage ramifications for being non-compliant and/or having inadequate HR and payroll systems.

ICYMI: FWO’s Payroll Remediation Program guide

Employers have obligations under the Fair Work Act 2009 (Cth) to pay employees their minimum entitlements for work performed.

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