SME employers are increasingly confused about workplace obligations, particularly when it comes to meeting payroll requirements and adhering to award standards.
Last week, the Fair Work Ombudsman (FWO) announced it had recovered $473 million in underpaid wages for nearly 160,000 workers in 2023-24, securing its largest penalties yet in its 15-year history.
In a recent statement, the FWO shared that $330 million of this amount came from large corporate sector businesses, which it named as a “priority area” for payment recovery.
Regarding the remaining $100+ million from non large-businesses, the regulator reaffirmed its commitment to assisting small-business employers and employees. Notably, it said that small business requests for advice on pay and entitlements rose by eight per cent in the 2023-34 period, underscoring the confusion many face around compliance.
Small-business employers seeking advice on pay obligations
According to the FWO’s annual report, half (50%) of requests to the Employer Advisory Service (EAS) came from businesses with five or fewer employees. The report also highlighted that “many” of these businesses were first-time employers.
“Most new employers have low levels of workplace relations knowledge and do not understand the basic principles of employing staff under an award,” the report stated.
The figures suggest that start-up founders and small-business owners, especially those new to the landscape or with limited resources, may struggle in particular with compliance.
ISB spoke to small-business owners and financial experts to explore the issue of complex regulations.
“Running an e-commerce business myself, I’ve seen how easy it is to get tangled in the complexity of pay rates,” said Chris Bajda, founder of Groomsday. “We had a situation in the early days where a contractor was accidentally underpaid because we misclassified their role. It wasn’t intentional, but it was still wrong. As soon as we realised what had happened, we corrected it by paying them the difference and making sure it didn’t happen again.”
Do employers underpay workers on purpose?
While there are exceptions, underpayment by SME employers is often unintentional, stemming from a lack of understanding of obligations.
Fred Van der Tang, who heads up payroll compliance system PaidRight, attributed some of the problem to the complexity of Australia’s awards system.
“The system’s complexity is compounded by the fact that a single business might have employees covered by multiple awards, each with different entitlements,” he said.
For small-business owners, this can make tracking entitlements like base wages, penalties, overtime, and leave allowances challenging.
“Navigating award compliance requires time, attention, and often external expertise, which many small businesses find hard to afford or access, leading to unintentional errors in worker payments,” Van der Tang added.
Luke Chapman of Simpro, which works with many small trades businesses, noted that small businesses often rely on outdated payroll methods like spreadsheets, paper timesheets, and emails, which can lead to inaccuracies. “This can lead to all kinds of inaccuracies or missing data, often resulting in workers being paid incorrectly.”
On the other hand, overreliance on digital solutions can also create issues. Stacey Price, a small-business owner and accountant, warned that accounting software can sometimes give employers a false sense of security.
“Accounting software makes people think you click three buttons and payroll is done, but that is far from the truth,” Price said. “Innocent mistakes happen because people think the software will tell them if things are wrong. That is usually not the case unless you are using a specific payroll program linked to awards to find the correct pay rates.”
What to do if you’re confused
If you’re struggling to understand your payroll obligations, you can contact the FWO’s Employer Advisory Service (EAS), which provides small-business employers with tailored written advice on payments, entitlements, awards, and record-keeping.
Checking out the FWO’s small-business showcase centre, or seeking professional advice, can also help keep your business compliant.
“Being an e-commerce entrepreneur has taught me that you can’t just rely on your own understanding when it comes to things like payroll,” said Bajda. “We’ve had to bring in outside help to stay on top of it all. At the end of the day, it’s about respecting the people who keep your business running.”
