Chemist Warehouse is currently facing a legal challenge over alleged underpayments, which may result in a $10 million backpay bill for hundreds of its stores nationwide.
The legal action has been taken by the Shop Distributive and Allied Employees Association against four South Australian franchisees of the discount pharmacy, which are owned by co-founders Jack and Sam Gance, as well as group head Mario Verrocchi. It is claimed that these franchisees underpaid nine staff members while they were working in higher positions.
Navigating Australia’s pay system can be quite challenging, especially with the Awards system in place. The Media Award, for example, has about 15 different levels of journalist editors, each with varying pay rates depending on weekend and overtime work and other factors such as whether they work for a major publication, digital publication, or rural paper.
This complexity often results in underpayment, which is a prevalent issue in Australia. Many businesses unintentionally pay their employees less than the minimum wage they are entitled to. The complexity of the Awards system, which has potentially hundreds of different pay scales, is one of the main reasons for underpayment. For small and medium-sized enterprises (SMEs), it’s crucial to clearly understand the relevant Awards and pay scales that apply to their employees to avoid legal and financial consequences.
According to Ben Thompson, running payroll in Australia is a complex process for most industries. This requires a thorough understanding of the relevant Modern Award or Enterprise Agreement, accurate interpretation of all pay conditions, correct employee classification, time and attendance data collection, accurate pay rule calculations based on the Award or Agreement, handling of PAYG tax and superannuation calculations, and distribution of net pays and payslips to employees.
“Running payroll in Australia is a complex process that requires a comprehensive understanding of employment law and an accurate interpretation of all pay conditions.
Thompson highlights that even big corporations like Chemist Warehouse are capable of making significant payroll errors, which can result in a $10 million backpay bill for hundreds of stores across the country.
He said, “If names like Chemist Warehouse are capable of making a $10m payroll error with all their legal, HR and payroll resources, imagine the 98 per cent of Australian businesses that are SMEs struggling to grasp the complexities of employment law.”
‘A flawed system’
Thompson argues that the Australian Industrial Relations system is undoubted and massively complex. He believes that the system should make it easy to be an employer and instil greater trust between employers and employees. However, he points out that many businesses, including big corporations, need help managing the system, which is holding back the economy and preventing people from obtaining quality employment opportunities.
“We have to acknowledge the system is flawed – our employment framework originated in 1907 and is one of the world’s most complex. To pay one person, one hour, for one shift, you have to be across all 122 different awards because people cannot be paid one cent less than what they’re owed.”
He noted that it is time to address the complexity of the system and make employing people easier and more rewarding for everyone. He says, “We need to create a country where business owners can hold their heads high and confidently grow their teams, knowing they are the best employers they can be. It’s time to address the complexity and make employing people easier and more rewarding for everyone.”
“If you use the analogy of driving a car: imagine driving for six hours on different types of roads – freeways, highways, residential streets, school zones, no school zones – the speed limit is constantly changing but there’s no signage at all – that’s what it’s like to be an employer in Australia.”
“There’s a whole pyramid of steps that employers can take to be the best-performing businesses they can be, but the bedrock of that pyramid is trust. If your employees have the slightest inkling that they’re not being paid correctly, you can’t build on that. They won’t perform or give their best if they don’t believe they’re being paid right. If you want a business and its employees to perform, you need to invest in trust. Compliance is trust, so the ROI on staff records and rewards management orders on payroll is a dumb move.”
Banish the ‘set and forget’ mindset
With all of the payroll scandals that have surfaced recently, many businesses are too scared to review their payroll processes for fear of encountering a mistake.
Thompson said: “Ignorance is not an excuse when it comes to paying employees correctly, though – and regulators won’t show mercy. With three-quarters of businesses getting payroll wrong, the problem goes beyond employers, but if you haven’t already reviewed your current payroll processes – now’s the time to do it,” Ben said.”
“Payment errors compound over time, so the longer it’s left, the more expensive it becomes. Ask the Fair Work Ombudsman for advice if you recognise an error and fix it while the discussion around payroll complexity is open. Make it your first priority to address and update outdated payroll processes and implement a regular reviewal system.”
Outsource payroll processes
“No one goes into business to become an employer, and of course, there’s no universal qualification required to become one. This means that many employers try to manage payroll on their own and end up getting it wrong.
“Business owners don’t think twice about outsourcing their accounting or tax, but there’s a different stigma associated with payroll – there’s a misconception that it’s easy to manage, but in reality, it’s a complex system that even large corporations can struggle with.
“Investing in compliance by outsourcing payroll is a simple way to build trust and gain peace of mind. Australia needs to become a country where business owners can confidently grow their teams. We need to make employing people easier, and one way to do this is by outsourcing functions like payroll to experts.”
Keep digital records
“Modernising payroll is not just valuable for compliance – it gives business owners the opportunity to scale by eliminating redundant and time-consuming processes, simultaneously minimising human error.
“Going digital also empowers your employees to be self-sufficient. Putting them in control of requesting leave, payslips and clocking in and out of shifts allows for easier staff records and rewards management. It all contributes to creating a culture of trust through transparency, helping businesses improve employee satisfaction and reducing turnover.
“We haven’t seen the end of underpayment scandals. A complex system and a hardline approach will surface many more of these stories. Can Aussie businesses do better? Definitely. Will it be easy? Doubtful. It’s the ongoing responsibility of the Fair Work Ombudsman to educate businesses about the technology that exists to make payroll streamlined, clear and correct – but until that happens across the board, employees will continue to be impacted by underpayments.
“Invest in the foundation of your business by investing in compliance; a company culture founded on trust goes hand in hand with success.”
Ben designed an Employment Hero platform that combines all these elements in a single platform. He explained, “I designed Employment Hero as an employment lawyer because I could see how difficult it was for my clients to get the process right, and I couldn’t find any other solution combining all these elements in a single platform.”
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