3 min read

Poor wages records and no payslips could cost $63,000

By Charles Power

The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 (Cth) (Vulnerable Workers amendment) was introduced last year. It makes a number of changes to the Fair Work Act 2009 (Cth) (FW Act) that are designed to target unscrupulous employers as a result of the ongoing concerns about the systematic exploitation of vulnerable workers.

The Vulnerable Workers amendment:

  • introduces higher penalties for categories of contraventions that are “serious contraventions” (contraventions that are deliberate and form part of a systematic pattern of conduct);
  • assigns responsibility to franchisors and holding companies for underpayments by their franchisees or subsidiaries where they knew or ought reasonably to have known of the contraventions and failed to take reasonable steps to prevent them;
  • prohibits employers from unreasonably requiring their employees to make payments (such as demanding repayment of their wages in cash);
  • strengthens the evidence-gathering powers of the Fair Work Ombudsman.

The Explanatory Memorandum (EM) to the amending legislation refers to the recent investigation into the underpayment of employees working for 7-Eleven franchisees, which uncovered systematic exploitation of migrant workers.

Employer obligations in relation to employee records and pay slips

A focus of the amendments is to ensure compliance with employer record-keeping and pay slip obligations.  The FW Act and regulations require employers to keep employee records for seven years. Employers must keep records in relation to an employee regarding:

  • basic employment details (employee name and nature of their employment);
  • pay;
  • overtime hours;
  • averaging arrangements;
  • leave entitlements;
  • superannuation contributions;
  • termination of employment (where applicable);
  • individual flexibility arrangements and guarantees of annual earnings.

In addition, employers are required to provide employees with pay slips within one working day of paying an amount to the employee in relation to the performance of work. Section 323 of the FW Act requires payments to be made in full at least monthly and most modern awards require that payment of wages be made at least weekly or fortnightly.

The Vulnerable Workers amendment has introduced changes to make employers more accountable for their failure to keep employee records and/or provide pay slips.

Between 2015 and 2017, the Fair Work Ombudsman (FWO) has said that 73% of its prosecutions involved pay slip and record-keeping contraventions. In a significant number of those cases, the ability to calculate the correct payments due to underpaid employees was compromised due to insufficient records being kept by the employer.

In some instances, records were deliberately falsified to cover up the contravention.

The new provision in section 557C(1) recognises the importance of employee records and pay slips in determining employer compliance with the FW Act.

If an employer is being prosecuted by the FWO in relation to a matter and is unable to produce employee records or pay slips (which they are required to have kept), then the evidentiary burden in relation to a particular allegation in that matter, is reversed. This means the employer is required to disprove the allegation.

For example, there is an allegation that the employer did not pay correct overtime loadings to an employee on a particular date but the employer has failed to produce a pay slip regarding the amount paid to the employee during the relevant period.

The onus is on the employer to give evidence in order to disprove that the employee was underpaid the overtime entitlement.

Previously, employers could still end up with a windfall because the FWO could not establish the correct amount of the underpayment.  The amendment removes any incentive for employers to ignore record-keeping obligations as means of avoiding detection of employee underpayments.

‘Reasonable excuse’

It is critical for employers to ensure that they understand their record-keeping obligations, including the form and the content of those records. However, there is a defence for employers to section 557C(1) where the employer can show that they had a “reasonable excuse” for failing to comply with their obligations.

“Reasonable excuse” is not defined in the FW Act and its ordinary meaning will apply. Given the amendments are largely focused on those employers who systematically and flagrantly breach their obligations, it is possible the exclusion from section 557C(1) will operate to alleviate those employers that engage in inadvertent conduct from the reverse onus  (for example, in a transfer of business circumstance where an employer did not take proper care to ensure the former business owner’s pay records were correct or perhaps a once-off error that results in an employee-record requirement being genuinely overlooked).

However, it remains to be seen how it will be applied by the courts. Hence, employers should act diligently in taking steps to ensure compliance with their obligations.

In a further effort to deter non-compliance with the record-keeping and pay slip provisions, the maximum penalty for contraventions of these provisions have increased to $63,000 for a company and $12,600 for an individual.

The EM states maximum penalties are aimed at employers that “deliberately fail to keep records as a part of a systematic plan to underpay workers and disguise their wrongdoing”.  As such, they are more likely to be imposed in circumstances where employers have acted deliberately and consciously in exploitation of workers, including in relation to vulnerable categories of employees such as migrants and young, casual employees.

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