Just in time for Spring, the Fair Work Ombudsman (FWO) has sprung surprise visits on Victorian farmers to assess whether their workers are being underpaid.
Approximately 30 farms and labour hire companies across Mildura, Red Cliffs and Robinvale have been visited following reports of potential underpayments.
The FWO has indicated that prioritising compliance in the agricultural and horticulture sector continues to remain a strong enforcement priority, and that site inspections will continue throughout 2023.
The FWO’s Victorian activities reflect its focus around the country, with over 190 agricultural businesses, in four States, having been inspected to date.
There are measures that can be taken before the FWO comes knocking, including reviewing contracts of employment, payslips, timesheets, and other record-keeping practices for compliance with core legal obligations.
Covering off both the legal and accounting considerations when encountering an inspection of your business, Milind Sheth and Chris Scott from RSM Australia's Fraud and Forensic Services team got together with Sapphire Parsons, Senior Associate at Macpherson Kelley to discuss what an increase in inspections will mean for the agriculture industry.
Sapphire will step you through your legal obligations and Milind and Chris will lend their expertise to the accounting side of things, discussing what happens when potential underpayments are identified.
High risks of non-compliance
With FWO reports in the horticulture sector suggesting that approximately 50% of employers are non-compliant with workplace laws (with the main contraventions relating to hourly rates and record-keeping), FWO Inspectors have been on alert for low rates of pay, and potential breaches of record-keeping obligations.
Which pay obligations apply?
Under s 44 of the Fair Work Act 2009 (Cth) (Act), employers must not contravene provisions of the National Employment Standards (NES) and, under s 45 of the Act, they also must not contravene applicable modern awards.
What are the corporate and individual penalties for non-compliance?
Under s 539 of the Act, the current penalty for serious contraventions of the Act is a maximum of $133,200 (600 penalty units), and for non-serious contraventions, a maximum of $13,320, per contravention.
Under s 546(2) of the Act, a body corporate can face a pecuniary penalty of up to five times the maximum penalty units (being $666,000) per contravention.
What are your labour market risks?
Any issues that arise from FWO site visits could also have an overarching impact on businesses that employ foreign workers. Under the s 140UA of the Migration Act 1958 (Cth), FWO inspectors have been granted powers for the purpose of ensuring compliance with a business’s sponsorship obligations as well as investigating whether a person has committed an offence or contravened a civil penalty provision.
Implications regarding conduct by individuals (including owners, officers and managers)
Under s 793 of the Act, conduct that officers, employees or agents engage in on behalf of a company, within the actual or apparent scope of their authority, is taken to be conduct engaged in by a company.
Additionally, under s 550 of the Act, individuals such as owners, officers and HR managers can also be liable for the acts or omissions of a company if they have been involved in contraventions.
What are the record-keeping obligations?
Under regulations 3.31 - 3.36 of the Fair Work Regulations 2009 (Cth) (Regulations), employers are required to keep records in respect of each employee, including:
- Rates of pay: The rate of remuneration paid to an employee, and the gross and net amounts paid to the employee;
- Loadings, penalty rates, allowances and entitlements: Loadings, penalty rates or other monetary allowances or separately identifiable entitlements;
- Overtime hours: The number of overtime hours worked by an employee during each day, or when the employee started and stopped working overtime hours;
- Leave: Leave entitlements including any leave that the employee takes and the balance of an employee’s leave entitlement from time to time;
- Superannuation: Superannuation contributions;
- Employment details: Information that specifies the employer and employee’s name, their employer status, the date on which the employee’s employment began, and the employer’s ABN; and
Deductions: Any deductions from an employee’s pay made by the employer.
Presumption of liability where records are not provided
Under s 557C of the Act, if there is an alleged contravention of the NES or applicable modern awards, and an employer has failed to comply with their record-keeping obligations under the Regulations, it will be presumed that the employer has breached the relevant obligations (e.g., under the NES and modern awards). This places a significant evidentiary burden on employers in defending such claims.
What could happen if the FWO wants to inspect your operations?
Under s 706 of the Act, the FWO has significant compliance powers, including powers to determine whether the Act, NES and modern awards have been complied with. These powers can be exercised at any time during working hours or at any other time if a FWO Inspector reasonably believes it is necessary to do so for compliance purposes.
FWO Inspectors can enter premises if they reasonably believe that the Act or an industrial instrument (e.g., a modern award) applies to workers onsite, or if they believe there are documents relevant to compliance purposes onsite.
Whilst onsite, FWO Inspectors’ powers include inspecting work, conducting interviews, requiring information about who has, or has access to, records or documents, and requiring the production of documents or making copies of documents.
Employers (and individual persons) must not intentionally hinder or obstruct FWO Inspectors in the performance of their functions without reasonable excuse.
What are the implications for labour hire providers?
In addition to potential back-pay liabilities and penalties under the Act, labour hire providers also face additional implications for their labour hire licences. For example, under s 34 of the Labour Hire Licensing Act 2018 (Vic) (LHL Act), Victorian labour hire providers are required to declare annual compliance with workplace laws regulating their business.
Under s 38 of the LHL Act, the Victorian Labour Hire Licensing Authority can vary, suspend, or cancel a labour hire licence if they have reasonable grounds for doing so (e.g., because a provider has not complied with workplace laws).
There are also substantial penalties for providing and advertising labour hire services without a licence, and for using an unlicensed labour hire provider.
What should agricultural, horticultural, and labour hire employers be doing?
Macpherson Kelley’s Employment, Safety & Migration team recommends that agricultural, horticultural, and labour hire employers review their contracts of employment, payslips, timesheets, and other record-keeping practices for compliance with their legal obligations.
Where potential underpayments are identified, external forensic accountants can assist in assessing the extent and quantum of any underpayments.
In-depth wage and documentation review to identify underpayments
RSM’s Fraud & Forensic Services team can assist by performing re-calculation of wage payments in line with relevant awards. Forensic accountants can also review timesheet entry data and relevant documentation. These procedures are performed to analyse potential underpayments and quantify the dollar value of underpayments to staff members.
Forensic accountants work with law firms under legal privilege. This means that the law firm will direct the scope of work required from the forensic accountants and that communications and findings shared between the forensic accountants and the law firm can remain strictly confidential and should not need to be disclosed in any related proceedings.
Identifying errors for employers
Common employer errors identified include (but are not limited to):
- Wage payment calculations not being in line with relevant awards;
- Failing to apply annual leave loadings;
- Incorrect superannuation contributions and tax deductions being applied;
- Incorrect calculation of hours worked based on timesheet data;
- Unrecorded timesheet entries in the employer’s payroll system;
- Missing or incorrectly completed timesheet records.
By confidentially working with forensic accountants, law firms can then advise clients regarding any underpayments, including in relation to remediation and the implementation of systems and processes to reduce the risks of future non-compliance.
Special thanks to Sapphire Parsons (Senior Associate) and Nicole Brown (Senior Associate) from Macpherson Kelley Employment, Safety & Migration team, who co-authored this article with RSM Australia's Milind Sheth (Senior Manager) and Chris Scott (Senior Consultant).