Against a backdrop where wage underpayments can now attract civil and criminal liability (see our related insight here) and have become an increasingly prevalent area of focus at the senior leadership level, the Fair Work Ombudsman (FWO) has recently published its highly anticipated Payroll Remediation Program Guide (Guide). Organisations should now view their approach to conducting a “payroll remediation program” (or PRP) through the lens of the FWO’s expectations as set out in the Guide.
What is the Remediation Guide?
The publication of the Guide is significant, as it is the first time the FWO has set out as a matter of public record its expectations of employers when conducting a PRP. It has previously been left to employers to navigate for themselves how best to conduct a remediation program.
At the outset, the FWO makes it clear that employers should take an ‘employee-centred’ approach, whilst also acknowledging there is no ‘one size fits all’ approach to a remediation. Rather, it needs to be suitably tailored and proportionate to the particular organisation, its size and circumstances and the extent of the issue (or issues) identified.
The Guide is not intended to be a checklist for compliance nor does it necessarily provide safe harbour from the FWO’s enforcement actions if followed. It is a ‘guide’ in the literal sense, providing a suggested framework of seven recommended elements of a PRP for organisations.
The Guide is directed more to larger employers, where a high quantum of underpayments or number of impacted employees are identified, or where the issues detected are complex and involve multiple industrial instruments. It further identifies that investment in resourcing and corporate governance with a sufficient level of executive oversight is particularly important for larger employers.
New insights from the FWO
Much of the guidance from the FWO is not entirely surprising in light of historical positions taken by the FWO (whether anecdotally or published by the FWO in enforceable undertakings or ad hoc commentary) and is consistent with ‘best practice’ in this area.
However, the Guide is noteworthy as it (a) notionally commits the FWO to a position on these practices and (b) articulates specific positions adopted by the FWO not communicated publicly previously.
For example, while most large employers (or at least their audit providers) are already cognisant of the FWO’s suggested ‘discovery and diagnosis’ practices of sample testing, analysing queries or complaints by employees, and considering industry-wide issues, the Guide maps out helpful summaries of these approaches that can assist to frame an organisation’s approach.
And while the Guide does not stray far from the FWO’s expressed position in its Compliance and Enforcement Policy as to when self-reporting is required, it helpfully steps this out in a ‘When to notify’ section that confirms the type of isolated errors that need not be actively reported, as well as clarifying its position that “For broader and/or potential systemic non-compliance, we encourage employers to report at an early stage, even if all facts and details are not yet available or understood” (emphasis added).
Employee-centred approach
A recurring theme throughout the Guide is the importance of an employee-centred approach to a PRP. Such an approach aims to put the employee at the heart of all decision points and stages of the PRP, and to return them to the position they would have been in if the non-compliance had not occurred.
The FWO expects an employer to genuinely consult with an employee (and other parties such as unions and consultative bodies) from the formative stages of a remediation program to the very end, and to make the necessary updates to its review scope as needed. This signals a shift away from the more traditional approach of only involving employees in a remediation at the point of communicating they were impacted.
The Guide also emphasises that a PRP should be as easy as possible for employees, minimising the complexity and imposition of onerous steps required to recover their entitlements.
By way of example, the FWO expects back payments to employees to include interest (noting simple interest is sufficient to satisfy the FWO) and for employers to build in assumptions which give employees the benefit of the doubt where record-keeping systems or practices were historically poor.
Offsetting approach
In line with its current approach, the Guide sets out the FWO’s general position that offsetting of contractual salaries against minimum entitlements can only be done on a pay period specific basis (ie not across multiple pay periods). This is the subject of current proceedings before the Federal Court and remains an open question until determined at a superior court level.
Looking beyond the statutory limitation period
It is widely known that the minimum statutory review period for underpayment claims is 6 years.
The FWO clearly signals its expectations in the Guide that employers should look back as far as possible, considering the availability of employee records and data and the point in time when the non-compliance began. Employers are actively encouraged to undertake investigations over a longer period which may mean this becomes the norm rather than the exception in the future.
A broader take on compliance
The Guide notes that a successful PRP will require consideration of additional measures to strengthen an employer’s payroll compliance practices and prevent similar contraventions in the future, by seeking to create a culture of compliance within an organisation.
This requires a shift in the mindset of an organisation from a reactive approach where issues are only investigated when identified, to a holistic and proactive model where assessment is constantly being undertaken and opportunities for improvement are sought. The FWO recognises that this requires adequate involvement and oversight from leaders for larger-scale PRPs or organisations, such as Boards, and senior executives and may require the development of new teams, roles or committees to ensure and champion compliance with obligations.
The importance of assurance and assistance
Another clear theme in the Guide is that the FWO’s approach to exercising their enforcement powers will be informed by the degree to which an employer follows its published guidance.
An employer’s level of transparency (including in its calculation methodology) and cooperation with the FWO is a highly relevant factor in the FWO’s assessment of the need for deterrence and action (if any) it will take under the Compliance and Enforcement Policy.
Where an employer provides a high level of assurance and assistance to the FWO on a voluntary basis, this may result in a lower degree of investigation by the FWO, or that enforcement action is not required.
Where to from here?
In light of the Guide being published, organisations should:
- review their existing remediation practices (and PRPs) to identify opportunities for improvement now the FWO has clearly set out its expectations;
- understand that there is no standardised approach to a PRP which will ensure satisfaction of the FWO. It requires a bespoke assessment that is employee-centred and specific to an organisation’s size, circumstances and its detected issue(s), noting that what is suitable for one issue may not work for another even within the same organisation; and
- balance the benefits of being cooperative and transparent in interactions with the FWO (ie decreasing the need for enforcement action by the FWO) with the needs and interests of the organisation in managing an effective, efficient and defensible remediation program.
Most importantly organisations should pro-actively enhance their risk management practices and governance oversight of payroll compliance in line with the FWO’s expectations to hopefully avoid the need to engage in time consuming and costly remediation programs.
