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Employers and employees alike are confused and concerned. Together, we need to step back and design an industrial relations system that works for everyone.
Our Australia Matters campaign last year identified key issues that should be top of mind for business leaders; Navigating Australia’s Industrial relations presented data using Fair Work Ombudsman analysis that showed there is in the order of ~$1.35 billion in underpayments per year.
The current industrial relations framework has been simplified but complexity is still a hallmark of the system. The magnitude of errors that can potentially take place can be overwhelming.
This week new annualised salary arrangements came into effect, and they should be a prompt for affected employers to ensure their record-keeping enables them to meet the substantial new compliance obligations. They should also prompt employers to better engage with government, regulators, unions, employees and other stakeholders to create an industrial relations system that works better for everyone.
Australia’s employers and employees are still working within an Industrial relations framework that bears the hallmarks of design in the post-war era. Key elements of the system emerged at a time when workers were engaged in relatively fixed patterns of work, and in particular, office workers spent 9–5 Monday to Friday sitting at desks in stuffy office blocks. A time before fax machines and desktop computers, let alone mobile phones or the internet.
Since those distant days, the fundamental pillars of Australia’s industrial relations framework have evolved slowly. At the same time, the way we all work has shifted dramatically, and the pace of digital change is exponential.
We now live in a world where technology gives people more freedom to work remotely and/or flexibly, to suit their personal lives, which has encouraged greater workforce participation. A world where many employers trust their employees to deliver results, irrespective of exactly where and when they do their work.
New annualised salaries obligations reflect concerns over the potential for total remuneration approaches to leave employees worse off than if they were paid by the hour. This follows examples of employers failing to record annualised salaries hours of work, and/or failures to regularly assess the adequacy of annualised salaries set at market rates in a time of low wage inflation. Paid annualised salaries with only a small buffer to absorb overtime, penalty rates and other allowances are particularly vulnerable to potential underpayment. The intention is to protect vulnerable workers that are close to minimum base rates on an annualised basis and ensure they are paid fairly for their work. A good, honest reason, if ever there was one. But the strict new obligations apply to more highly remunerated workers too and – in doing so – threaten to undermine their hard-won flexible working arrangements.
Employers must ensure that employees to whom the affected modern awards categories apply (which include several white collar professions) have time records tracked, including start, finish, and break times. This obligation isn’t new. However, this will need to be handled delicately, to avoid undermining the mutual trust that has developed to allow flexible working arrangements to flourish.
While the rules differ between the awards, employers who fail to keep sufficient records could face fines or other sanctions. Fearful of such consequences, some employers may now be disinclined to continue or expand certain flexible working arrangements for their employees.
The result? Employers and employees both lose out.
It is unintended consequences like these that employers could flag with government and regulators, if they were at the table when new legislation is being formed. This week’s annualised salary obligations have been on the table since late 2015 (as part of the 4 yearly Modern Award review process). However, the discussion within the market around the impact of these changes in practical terms only commenced late last year. This begs a question as to whether greater employer engagement could have resulted in a more balanced outcome that delivered the same protection for vulnerable employees without impacting flexibility and workplace culture.
Via industry associations and business representation groups, employers need to explain the practicalities of implementing potential industrial relations rules. In this way, regulations can be refined to not only protect the few, but also protect the many.
More broadly, employers can also work alongside government, unions, regulators and other stakeholders to shape the future of Australia’s industrial relations system. Instead of patching up problems as they arise, we can come together to simplify and fix the system more comprehensively.
By finding common ground and improving the system together, everyone stands to gain.
Employees would be less likely to be underpaid and more likely to enjoy the benefits of flexible working. Employers would have the confidence to offer such flexibility, without fear of inadvertently underpaying employees. And the resulting increase in productivity would benefit the wider economy too.
Guidance for employers
The questions that business leaders should be asking themselves in relation to wages was the starting point. The CEO survey showcased the actions that should be taken to avoid complacency and, through our ongoing Australia Matters series, we’re providing further analysis and commentary to guide employers through risks, challenges and opportunities associated with wages trust.
Contact Rohan Geddes to learn more.
Throughout 2020 we will be deep diving into the issues raised in the PwC Australia Matters series. Only together can we solve these important problems and navigate the country through what is predicted to be a testing year for the economy. We call this, The Together Effect. Contact us to help become part of the solution.
Partner, Payroll Consulting, PwC Australia
Tel: +61 2 8266 7261
National Thought Leadership Manager, PwC Australia
Tel: +61 (2) 8266 0252