The estimate was revealed in a new report from global accounting and advisory firm PwC, which noted that one of the key risks facing businesses today is in ensuring employees are paid accurately for the work that they do.
It also estimated that around 13 per cent of Australia’s total working population is affected by such underpayments.
“People should be fully and fairly rewarded for their contribution to their employers’ success,” the authors wrote.
They stated that “the vast majority of employers set out to do the right thing by their people, but the chances of inadvertently making a mistake are extremely high and, as we are witnessing, small mistakes made across large workforces over several years add up to very large numbers”.
In reality, according to the consultancy firm, it’s a combination of a number of factors that have contributed to the challenge so many employers now face.
It led PwC to undertake modelling using data from the Fair Work Ombudsman in order to get an idea of the scale of the problem, with a focus on industries with a high prevalence of underpayment of workers’ entitlements.
The subsequent analysis indicated there is in the order of around $1.35 billion in underpayments each and every year.
Which industries stand out for worker underpayments?
According to the report, sectors most at risk include:
- construction, at an estimated $320 million
- healthcare and social assistance, at around $220 million
- accommodation and food services, at around $190 million
- retail, at around $180 million
This estimate is said to impact one-fifth, or around 21 per cent, of the workforce in the industries listed above, and equates to an estimated 13 per cent of the total Australian workforce.
Simpler system would benefit everyone
PwC indicated that for workers, the introduction of a simpler system would also be beneficial, by creating more transparency and reducing the number of inadvertent underpayments.
For employers, it said a simpler system would make it easier for them to do the right thing by their workers, while reducing their own risk exposure and compliance work.
And for the wider economy, it said that a simpler system would cut red tape, boost productivity and ensure Australians receive a fair day’s pay for a fair day’s work.
The report noted that with action being required to prepare for what the economy may have in store next year, business leaders should be asking themselves five key questions:
- When was the last time we checked that the way we pay people is correct or sought advice to ensure that what we think are the correct rules, are actually correct?
- How are we resourcing compliance internally and have we struck the right balance between systems and people?
- How regularly are we updating our HR information systems, time and attendance systems, and payroll systems?
- Given the high organisational and personal risks, have we sufficiently escalated this issue within our governance and decision-making processes?
- Do our people and our directors have sufficient understanding of the industrial relations landscape as it relates to our organisation?
Scale of problem symptomatic of complexity
According to the report, the enormous amount of money not reaching workers correctly is proof of the sheer complexity of the industrial relations systems Australian employers are forced to navigate.
“The current industrial relations framework has been simplified, including through award modernisation, but complexity is still the hallmark of the system,” it said.
“The Fair Work Act, which commenced in 2009, continued the nationalisation of industrial relations matters through the simplification of industrial awards, shrinking common rule awards from over 1,500 instruments to 122 modern awards.
“[But] the resulting modern awards have multiple clauses addressing minimum rates of pay and other safety net entitlements, which differ from job to job, skill level by skill level and industry by industry. Safety net entitlements such as overtime, penalty and shift rates are interdependent and may differ within a single award depending upon employment status and work type.”
It noted that in certain awards, there can be as many as 10 different rules governing the accrual of overtime, and the various and differing provisions around penalty rates, notification requirements and annualised salaries create “a broad runway for errors to be made”.
“The magnitude of errors that can potentially take place can be overwhelming. In many cases, one small error in a system can become a multimillion-dollar liability by the time it is discovered, many years down the track,” it said.
Indeed, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) issued its own plea for a simplification of the system, and went so far as suggesting that the modern awards be integrated into the ATO’s new Single Touch Payroll reporting system.