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ASIC Annual Forum 2019: Meet the Commission

  • Penalties have increased for organisations that are non-compliant with workplace law or regulations.
  • The most common breaches relate to incorrect payments and the major driver of underpayments was a lack of knowledge and understanding of awards, agreements and contracts.
  • The most effective mitigation strategy is appropriate compliance checks to ensure that the organisation is carrying out all of the obligations imposed on it by the relevant legislation and awards.

The purpose of this article is to raise awareness of officers and senior managers to the more common breaches of workplace laws which have been occurring. It discusses the potential costs (financial and non-financial) to an organisation which is found guilty of underpayments or other civil breaches of the Fair Work Act 2009 (‘the Act’)1, then provides some discussion about the best governance responses to remove or at least mitigate the risk of non-compliance.

It is important to state at the outset that the article concentrates on minimum entitlements under an employee’s modern award, enterprise agreement or common-law contract of employment, with a brief discussion on flexible work arrangements, discrimination and other provisions relating to general fairness in the workplace as required by the Act. The article does not deal specifically with all of the changes in workplace laws which have been passed into law of recent times which should be compulsory reading prior to the commencement of any Workplace Compliance Project.

Officers and senior managers responsible for governance activities in their organisations will have a particular interest in all of three amendment Acts2, especially given the maximum penalties enacted have been increased tenfold.

Coupled with the accessorial liability penalties3 already available to the courts, no organisation should underestimate the importance of a Workplace Compliance Risk Management (WCRM) program, to systematically remove (or minimise) any risk of non-compliance.4

This article assumes a reasonable level of understanding of the processes involved in the adoption of a standard risk management framework, and an ability to adapt that framework in a context appropriate to the needs of their organisation. A ‘brief’ overview of what might be involved in a WCRM program is as follows:

Key steps:

  1. Establish the context — both internal and external to document the scope (and risk criteria) for the compliance project.
  2. Document the risks associated with the compliance categories you are reviewing.
  3. Analyse and evaluate the risks identified.
  4. Treat the risks — remove, mitigate, minimise.
  5. Schedule regular reporting and reviews.

This article concentrates largely on Step 2 but makes reference to the other steps as necessary.

Has the external environment changed to the extent that there is a higher level of risk than previously? Most definitely yes.

How well do organisations manage the risk of non-compliance now?

Non-compliance with the Act, and/or complimentary legislation/regulations has always been a risk to a business, but it is fair to say that compliance in this area, was often taken for granted in organisations until something went wrong.

Has the external environment changed to the extent that there is a higher level of risk than previously? Most definitely yes. This is due largely to the work done in this area by the FWO5 depending on the circumstances of the case.

An organisation is more likely to be caught now more than ever, if engaged in any wrongdoing — intentional or not. The penalties are considerably higher, and the courts are handing out severe penalties as a deterrent to potential offenders.

Ongoing award reviews, amendments forthcoming from those reviews (which are advised only to subscribers to the Fair Work Commission award update service), and changes to legislation to deal with court decisions6 make the task of keeping up to date even more precarious than previously.

In terms of the internal environment, it is likely that not a lot has changed. The biggest risk is, that if breaches of the legislation and regulations are occurring in your organisation, they are largely hidden, for example, incorrect formulae inputted into your payroll system.

The things that have gone wrong for organisations in recent times have included (but were not limited to) the discovery of underpayments of wages/entitlements based on system errors, employee/union complaints regarding employer behaviour, (both of which are ‘hidden’ until revealed or reported to management), or breaches discovered as an outcome of an inspection by an officer of the Fair Work Ombudsman (FWO).

While the most common breaches were related to incorrect payments of some kind (discussed below) each year sees an increasing number of breaches relating to discrimination, bullying, sexual harassment, and in some instances the incorrect application of workplace laws relating to an employee’s workplace rights, for example, parental leave and return to work arrangements.

In all of these situations, the most effective mitigation strategy is appropriate compliance checks designed specifically to ensure that the organisation is carrying out all of the obligations imposed on it by the relevant legislation and awards (where applicable).

What are the potential consequences of non-compliance?

The outcome from such system failures has, in a few cases sent a business into bankruptcy, but in any event such incidents will almost always cause serious cash flow issues for the business as the monies required to be paid to employees, usually immediately, to rectify the underpayment, (or paid out as damages) have not been budgeted for.

It is also commonplace for other serious disruption to occur to the business and distress to employees in incidents where the breaches are of a non-financial nature. One example of this type of disruption is alleged sexual harassment which can destroy the productive culture and teamwork in a workgroup which experiences such an event or events.

From an administration perspective, what will occur is that once an underpayment has been identified (for example), the entity is required to calculate the total shortfall for each employee affected over the previous six years. In addition, the organisation will need to provide some guarantee/evidence that the totality of the payroll system for all employees is fully compliant. Such exercises can be extremely time-consuming and expensive.

Underpayments to employees inevitably cause employees to trust their employer less and may cause major reputational damage to the business and its directors and managers, not only internally but also amongst the external stakeholders in the business.

In regard to underpayments, as long as the non-compliance was unintentional, settled amicably with the employees involved, and the entity is able to afford to pay the wages and entitlements owing (including superannuation if applicable), an organisation that then continues to do the right thing can usually recover from such events fairly quickly and without any permanent damage.

Whilst this may be true in situations where the employer had made the underpayments unintentionally and done everything in their power to try and rectify the situation as quickly as possible, there is a good chance that the offending organisation may avoid litigation by the Office of the Fair Work Ombudsman (FWO).

On the other hand, non-cooperation and unreasonable delays can result in significant fines being imposed by a court. The penalties which can result from underpayments and/ or other breaches of the legislation must be factored into any risk assessment in regard to potential consequences for the organisation.

Penalties available to the courts for non-compliance7

The first level of penalties is the infringement notice (on the spot) which are fines available to Fair Work inspectors. These can range up to $1,260 per breach for an individual and up to $6,300 for a corporation. They are typically imposed for first offences relating to pay-slips and/or inadequate record keeping.

The FWO also has a number of constructive interventions available to it, to educate and enforce the legislation prior to the commencement of litigation (which is discussed below).

The first is a compliance partnership between the FWO and businesses that want to demonstrate to their employees and others the company’s level of commitment to workplace compliance. This will be relevant for those organisations who determine through their WCRM process that this as an important component of its future compliance strategy and may be one response to an incident of non-compliance.

It often includes a commitment to self-auditing of pay and record keeping. Where appropriate it should also include a strategy for reviewing and monitoring supply chain and franchise relationships where they exist, especially where labour-hire companies are involved. History shows that these companies often lack the level of knowledge and resources necessary to comply with awards and other workplace laws.8

The other intervention sometimes used by the FWO prior to litigation is that of enforceable undertakings (EU’s) which are a written agreement between the FWO and the offending company to ensure future compliance. It should be understood that this is a legal document which the FWO can enforce through the courts, should this become necessary.


Penalties can amount up to $12,600 per contravention for an individual, and up to $63,000 per contravention for a corporation. Alongside the possibility that if the breach is considered a ‘serious contravention’ (as determined by a court), those penalties may be increased up to $126,000 per contravention for an individual and up to $630,000 per contravention for a corporation respectively. The potential financial consequences alone for an organisation can be extremely serious.

At the time of writing this article, some politicians (both at a federal and state level) are threatening to criminalise underpayments and other workplace offences.

The real question has to be: Have these cases, and the penalties imposed on employers, changed the behaviour and performance of the business community generally?

What level of risk of non-compliance is your organisation carrying?

A number of cases in recent years where serious breaches of workplace law have been proven have involved some of Australia’s leading retailers, food processors and most recently major franchisors that because of their size and general reputation would have been considered low risk.

Even more so, the announcement in recent weeks that the Commonwealth Bank has underpaid large numbers of workers. This suggests that the risk in small to medium-size businesses, particularly in highly competitive market industries, may be extremely high. Perhaps you think this does not apply to your organisation, but consider the following:

  • the larger organisations of retailers, franchisors, food processors (and now banks) referred to above would have given the same response three years ago
  • a majority of the businesses in your supply chains for both goods and services may sit exactly there
  • good governance demands that our organisations pay particular attention to those entities in our supply chain, particularly those who employ vulnerable workers
  • A WCRM program (as described below) which includes regular generic and specific compliance checks is essential
  • Attention should be given to ensure that a business clearly identifies all of the awards
  • directly applicable to their business
  • which underpin any enterprise agreements in place
  • which underpin any common law employment contracts.

The discovery of underpayment situations involving well-known companies and franchisors has increased considerably and attracted a large amount of media attention. Most of the time, however, non-compliance can be largely invisible, and organisations must have a compliance strategy in place where they actively monitor their procedures in a manner which minimises the likelihood of the occurrence of a breach.

The cases referred to above have undoubtedly raised the profile of the need for organisations to better manage workplace laws.

The real question has to be: Have these cases, and the penalties imposed on employers, changed the behaviour and performance of the business community generally?

It would seem that it is not yet clear, but the examples discussed above and those appearing in FWO media releases weekly, regarding case after case of breaches of workplace laws suggest the answer is a clear no.

It does not, however, represent the whole story, the positive news is that there has been some improvement witnessed recently. The compliance campaigns which the FWO has been engaged in, (based on specific types of businesses and/or specific geographic locations) demonstrate a significant change in attitude and improvement in compliance performance in many industries which were previously below the expected standard of performance. This, however, is largely as a result of employers being found to be non-compliant and entering into a program with the FWO to rectify their non-compliance. Good governance is about prevention by managing risk in a structured way to eliminate non-compliance.

Some organisations, unfortunately, pay ‘lip service’ to compliance with workplace laws, but when caught out breaching the laws, the all too common response is ‘I have spoken with HR and payroll and they assured me everything is fine’.

The complacency in acceptance of this observation is at odds with the results of audits conducted by the office of the Fair Work Ombudsman over recent years demonstrating widespread non-compliance, particularly in some industries.

Major types of non-compliance and some of the causes

It is not possible in an article of this size to identify and discuss all of the types of non-compliance which may occur and attribute a particular or single cause to a specific incident of non-compliance.

This section of the article has been put together by the writers based on the publicly available information relating to major non compliance reported in the media and on the FWO website, a series of discussions with human resource managers, senior officers of the FWO (which was extremely helpful to the writer) and personal experience of the writers in responding to non-compliance events over recent years.


All those involved in the consultations/discussions agreed that the major driver of underpayments was a lack of knowledge and understanding of awards, agreements and contracts but the underpinning reasons as to why this occurred were many and varied.

Lack of knowledge or understanding of awards

In a significant number of organisations, many managers (and indeed directors/ officers) did not know what was required of them and their organisation in respect to the particular awards which had application in their business, and how those awards were intended to operate. This was particularly so in respect to the correct classification of employees, the rules associated with various types of employment (for example casual versus part-time), the overtime and/ penalty payments required to be paid or many of the rules associated with the non-monetary entitlements.

One example of this (and there are many) relates to the use of annualised salaries (or ‘rolled up hourly rates’) to pay employees who are award covered. It would be expected that most employers these days would understand that an employer cannot ‘contract’ an employee who is covered by an award on to a contract which provides for less pay and/or entitlements than apply under the Award but provisions relating to ‘offsetting’ can be agreed to under in certain circumstances . There are many examples where a failure to understand the Award system can result in non-compliance.

On a number of occasions, accountants and/or HR managers have been given responsibility for ensuring compliance with worker payments, but, were the first to admit that they knew little about Awards and the legal requirements associated with the employment or engagement of workers.

Payroll personnel often ended up as the ‘go-to’ person on what a worker was to be paid, many with limited training in the application of the awards they were operating under. The writers have also come across payroll systems which were themselves incorrect due to the development of incorrect formulas inputted from the award/agreement requirements. This suggests that corporations (indeed all business entities) should firstly ensure that the persons carrying the responsibility for payroll compliance have the knowledge and understanding of the relevant awards, agreements and contracts of employment to undertake regular and reliable compliance checks.

Highly competitive industries

There is strong anecdotal evidence that in some industries employers often copy the workplace practices (and sometimes the rates of pay) of other organisations in the same industry, which are of themselves incorrect. This sometimes leads to the simple excuse of ‘but that is what everyone else is doing’ in an attempt to justify their decision to ignore the Award requirements. On some occasions this lack of knowledge might be considered ‘careless’ or perhaps ‘reckless’ but in other situations might best be described as ‘intentional disregard’ (a taxation law concept meaning in common language that the person knew about the breach/potential breach but did nothing to rectify the situation).

An example of this has been the behaviour of labour hire contractors in various industries who have been found guilty of ‘sham contracting’ ie … engaging workers as contractors (as long as they have an ABN) who were clearly employees, in order to pay an ‘agreed’ rate and avoid superannuation, workers compensation etc, and whose only defence was pointing to other companies who operated in the same way.

There is also some evidence of such contractors being told by their potential client the price they must meet to secure the job, either knowing full well it is insufficient to meet all of the award requirements or simply not caring.

The article has not spent a lot of time on the size of penalties which may be incurred by an organisation found guilty of charges under the Act as they are readily available on the FWO website. The recent increases in penalties discussed previously should be sufficient to influence any manager /officer of an organisation who is contemplating ‘running the gauntlet’ by deliberately underpaying their employees /contractors or, aiding or abetting a contractor to underpay their employees, that such behaviour is simply not worth the risk.

An organisation, however, should most definitely also weigh up the potential cost of unintentional breaches, errors or oversights of their obligations in their analysis and evaluation of the risks identified.

Analysing and evaluating risks other than underpayments

In addition to the risks associated with the underpayment of wages and/ or other monetary entitlements are the risks associated with breaching any of the other provisions of the Act and its regulations which deal with acts and/or omissions of employers rather with than obligations relating to payment matters.

For example, compliance checks must review the organisation’s systems in relation to an employee/contractor’s rights under the Act, and in particular the systems in place to ensure there is full compliance in respect to the general protection provisions of the Act.

These deal with a range of potential ‘adverse actions’ which range from not giving an employee leave to which they are entitled, through to both direct and indirect discrimination and termination of employment. To develop a risk management plan for these areas of employment law, a thorough review of the fact sheets available from the FWO website is a good starting point[vii].

Compliance checks on ‘supply chain’ and other contractors should be a standard risk management practice, as one component of any WCRM plan that an entity puts in place. Such compliance checks need to be done by someone other than the contractor, or someone the contractor engages, unless you agree to the appointment.


Readers would understand that this article cannot deal with, or even comment on, all of the obligations an employer has under the relevant legislation and has concentrated on the key issues of underpayments of wages and entitlements and highlights the need for a Workplace Compliance Risk Management plan. To emphasise the purpose of this article, suffice to say two things.

Firstly, the need for the development of a policy handbook setting out all of the policies and procedures required to ensure that the organisation meets all of its obligations under the Act and Regulations.

Secondly, to reinforce the fact that there is a considerable number of other obligations placed on an employer which are covered by various components of both federal and state legislation, too numerous to discuss in this article, but which all require a similar approach to that discussed above.

  1. Fair Work Act 2009 and the Fair Work Regulations 2009 govern the employer/employee relationship in Australia.
  2. Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 is an Act ‘to deter unlawful practices‘ and ‘deliberate exploitation of workers’ in particular employees with language difficulties, or some other impediment to them properly understanding their rights and/or to what they are being required to agree.
    Fair Work Amendment (Corrupting Benefits) Act 2017 is an Act prohibiting the giving, receiving or soliciting of corrupting benefits, prohibiting the payment of cash or ‘in kind’ payments to relevant employee organisations.
    Fair Work Amendment (Family and Domestic Violence Leave) Act 2018 is an Act to insert an entitlement in the National Employment Standards to five days of unpaid family and domestic violence leave in a 12-month period.
  3. Accessorial liability in this context refers to a person who is ‘involved’ in a contravention of the Fair Work Act may be held responsible for that contravention and be subject to significant financial penalties.
  4. A WCRM program adopts a project management protocol to the establishment of a Workplace Compliance Risk Management plan.
  5. The FWO Harvest Trail Inquiry along with the industry-specific compliance campaigns in the fast-food, restaurants and cafes campaign, the textile clothing and footwear campaign and the East coast retail, hair and beauty campaigns are key examples of industries which have been subject to specific auditing by the FWO — all of which revealed substantial non-compliance.
  6. The Workpac Pty Ltd v Skene (2018) FCAFC 131 — Fedcourt — case regarding the entitlements of casual employees is a good example of the complexity’s employers have to deal with — still controversial. Today.
  7. A full explanation of maximum penalties available and a list of cases where they have been applied are available at
  8. Over recent months a number of labour-hire companies operating in the mining, construction, horticulture and agriculture industries have been found to be non-compliant by the courts.
  9. Fact sheets explaining the employer obligations under the Act are available from the FWO website at

Frank McMahon can be contacted on 0407 305 496 or by email at
Kirsten Hartmann can be contacted 0407 292 512 or by email at

Material published in Governance Directions is copyright and may not be reproduced without permission. The views expressed therein are those of the author and not of Governance Institute of Australia. All views and opinions are provided as general commentary only and should not be relied upon in place of specific accounting, legal or other professional advice.

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